StoneX's Valentin Olah Says Cotton Faces Demand Headwinds, Ample Supply

Key Points

U.S. cotton ending stocks for 2024/25 raised by 400,000 bales to 4.1 million
World balance sheet for 2023-24 shows higher beginning stocks and production, reduced trade and consumption
U.S. cotton exports for 2023-24 reduced by 500,000 bales to 11.8 million due to slowing shipments

ICE cotton futures losses steepened on Wednesday following the release of the U.S. Department of Agriculture's (USDA) supply and demand report. StoneX risk management consultant Valentin Olah sees further downside after the update, stating, "[w]eakness continues and we still see 68 (cent)s as the next landing zone, short-term."

The report paints a picture of abundant cotton supplies and lackluster demand. Revisions to the global balance sheet included increased beginning stocks and production, while trade and consumption estimates were lowered. The U.S. export forecast for the 2023-24 crop year was cut by half a million bales as shipments fail to meet earlier projections.

Olah's outlook aligns with the bearish sentiment prevailing in the cotton market. With ample inventories and subdued demand, prices are expected to remain under pressure in the near term. Market participants will be closely watching Thursday's USDA weekly export sales report for further clues on demand dynamics.

Despite the current headwinds, there was a glimmer of hope from China, as the country's agriculture ministry raised its 2023/24 cotton import forecast by 200,000 metric tons. However, it remains to be seen if this will be enough to offset the broader market weakness.

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