Cotton Futures Jump to 3-Month Peak on Weak Dollar

Key Moments

Futures Rally on Currency Moves and Positioning Shift

ICE cotton futures traded sharply higher on Monday, with prices climbing more than 3% as a softer U.S. dollar and continued short covering by speculators underpinned the market.

At 10:13 a.m. ET, May cotton contracts were up 2.06 cents, or 3.1%, at 67.91 cents per lb, putting the benchmark contract at its strongest level since November 4.

Dollar Weakness and Chinese Interest in U.S. Agriculture

The U.S. dollar index slipped 0.4% versus a basket of major currencies, making cotton that is priced in dollars less expensive for overseas buyers and providing support to futures.

“The dollar is weaker and China has expressed interest in buying U.S. agricultural products beyond corn and beans though they didn’t lift cotton specifically, but that’s what they’re implying,” said Keith Brown, principal cotton broker at Keith Brown and Co in Georgia.

According to two sources familiar with the matter, senior economic officials from the United States and China met in Paris on Sunday and discussed possible areas of alignment in agriculture. The sources characterized the talks as “remarkably stable.”

Speculative Flows: Hedge Funds Trim Net Shorts

Latest data from the U.S. Commodity Futures Trading Commission indicated that hedge funds have been scaling back their bearish exposure to cotton.

Money managers are “starting to make their move and paring their positions down,” which is also supporting prices, Brown added.

Energy Market Backdrop Supports Fiber Prices

Oil prices remained firm as attacks on Gulf energy infrastructure and the effective closure of the key Strait of Hormuz shipping route kept crude elevated. Higher crude costs raise the price of polyester, a competing synthetic fiber, which in turn helps bolster demand for cotton and supports cotton futures prices.