GSX Weekly Commodity Comment

Key Takeaways:

Cotton is still a weather market. Planting was 77% done by June 7, right on the five-year average and ahead of last year's 75%, with squaring at 13% versus 11%. The first condition score is holding up too: 53% good/excellent against 49% last year, and only 14% poor/very poor against 21%. Texas is the risk line. 68% planted versus a 71% average, 21% poor/very poor, 45% good/excellent. That keeps the High Plains story alive, but the board wants visible deterioration in the weekly condition line and isn't getting it yet.

The balance sheet is doing more work than the field reports. USDA tightened 26/27: consumption up to 121.7m bales, a six-year high, production cut to 116.0m, ending stocks off 5.4m to 71.8m. Export sales for the week to May 28 firmed to 196,400 bales with shipments at 296,200. Decent, not enough. West Texas rain took some heat out of the weather trade, but High Plains drought risk hasn't gone anywhere and crude at $90-92 keeps the polyester cost leg under fibre. This is still a weather market. It goes higher when the condition line breaks, not before.

Coffee has the cleaner bearish story and the thinner cushion. USDA/FAS has Brazil's 26/27 crop at a record 71.9m bags, up 14%, arabica at 47.5m and robusta at 24.4m, with exports near 49.1m as the crop moves. Safras is bigger still at 75.65m and had harvest 23% done by June 2, behind last year's 28% on a smaller crop. July arabica broke below $2.50, trading around 246, lowest since November 2024, with the whole market leaning into the record crop. But certs are thin: 412,422 bags in New York, about 622,000 robusta in London. Any hiccup in Brazil flows, a weather scare or firmer nearby demand and crowded shorts get hurt. Not a free trade.

Macro is the swing. Brent is around $92 and EIA has constrained Hormuz flows averaging $105 through June and July, with OECD stocks heading below 2.3bn barrels, the lowest since records start in 2003. That's the problem with the TACO trade this round: the market may still get its de-escalation, but the pressure is physical now, not headline. With 10s near 4.54% and December pricing a 25bp hike, cotton has the better forward setup if crude holds and exports keep printing. Coffee only punishes shorts if Brazil stumbles.

Cotton has moved from a breakout retest into a deeper correction, with only a tentative recovery attempt showing so far. The key change is that the old 82–84 c/lb breakout area remains clearly lost and is now overhead resistance rather than support. July 2026 cotton closed Friday, 29 May, at 76.15 c/lb, while December 2026 closed at 79.59 c/lb and March 2027 at 80.72 c/lb. Compared with the 22 May closes used last week, that leaves July down 127 points, while December was up 26 points and March up roughly 53 points. The recovery has therefore been uneven: nearby July remained under pressure, while deferred contracts stabilized modestly.

By Tuesday, 2 June, the market had bounced but had not repaired the technical break. July 2026 cotton closed at 77.04 c/lb, December 2026 at 80.54 c/lb and March 2027 at 81.72 c/lb, keeping the board below the old 82–84 c/lb breakout zone even after the rebound. The broader cotton benchmark was quoted around 76.99 c/lb on 2 June, up on the day but still down more than 7% over the month, leaving prices well below the mid-May upper-80s highs.

Spot indicators weakened again. USDA’s Weekly Cotton Market Review showed seven-market spot quotations averaging 72.12 c/lb for the week ending 28 May, down 433 points from 76.45 c/lb the previous week, though still above 62.61 c/lb a year earlier. Daily spot quotations ranged from a high of 72.63 c/lb on 22 May to a low of 71.37 c/lb on 27 May. Liquidity improved from the prior week’s near standstill but remained thin: spot transactions totaled 4,493 bales, versus just 6 bales the previous week and 1,499 bales a year earlier. ICE July ended the USDA review week at 76.77 c/lb, down from 77.98 c/lb the week before. That means the cash market is still confirming near-term futures weakness, even though season-to-date spot transactions remain well ahead of last year at 1.50 million bales versus 958,561 bales.

CT has simply plunged lower, with only a brief pause at the resistance area outlined previously. Price moved directly to the 0.50 retracement at 73.5 and, in fact, sliced straight through it.

We can read this in one of two ways: either a small (b)-wave emerged out of the green support area, or wave (a) is not yet complete. Either way, the next level to watch is 70 — the 0.618 retracement — which could complete all of wave 2.

The primary scenario is now that the small bounce tracked as a (b)-wave, and we are completing a sharp wave 2 with the (c)-wave underway, targeting the 0.618 retracement at 70.

Also of note, the red 200DMA is converging on the 70 area, which would act as very strong support for cotton futures once that region is reached. In short, we expect price to continue directly lower from here against the current risk-off backdrop.

The latest CFTC futures-and-options data, for 2 June, showed managed money holding 74,155 long contracts and 21,753 short contracts, leaving a net long of 52,402 contracts. That is down 1,798 contracts from the prior week’s 54,200-contract net long. The market therefore remains fund-long, but the fund length has been trimmed again. Unlike the prior week, this was not overwhelmingly long liquidation: managed money cut only 672 longs, while shorts increased by 1,125 contracts, meaning the reduction in the net long came more from fresh short-building than from long liquidation.

Commercial positioning eased only marginally on a net basis, but the underlying detail is more cautionary. Producer, merchant, processor and user accounts were 84,855 contracts long and 213,621 contracts short, leaving them net short 128,766 contracts. That is only slightly less short than the previous week’s roughly 129,042-contract net short, because commercial longs rose by 4,880 contracts, just exceeding the 4,605-contract increase in commercial shorts. So the net commercial short improved a touch, but this was not another reduction in hedge pressure: outright commercial shorts actually increased. The commercial short remains large, equal to 41.6% of open interest, and still points to heavy producer and merchant selling into the rally.

USDA’s U.S. cotton balance remains heavy, and the June WASDE is not due until June 11, so the May balance sheet remains the latest official baseline. For 2025/26, USDA has production at 13.90 million bales, exports at 12.00 million, domestic use at 1.60 million and ending stocks at 4.40 million, leaving stocks-to-use at 32.4%. For 2026/27, USDA projects production at 13.30 million bales, exports at 12.30 million, domestic use at 1.60 million and ending stocks at 3.90 million, cutting stocks-to-use to 28.1%. That is supportive, and USDA’s new-crop farm price forecast rises to 73 cents/lb from 63 cents/lb in 2025/26, but the balance is still not tight enough to drive prices without help from weather or demand.

Some abandonment risk is already built into USDA’s forecast. The May balance sheet uses 9.64 million planted acres and 7.38 million harvested acres for 2026/27, implying about 23.4% of planted area is not harvested. USDA notes harvested area is based on 10-year regional abandonment averages, with the Southwest adjusted for moisture. That means West Texas dryness alone may not be enough; the market needs evidence stands are deteriorating beyond USDA’s assumptions.

The global balance is more constructive. USDA projects 2026/27 world production at 116.04 million bales, consumption at 121.69 million and ending stocks falling to 71.84 million from 77.27 million. Still, Brazil remains a major competitor, with production projected at 17.50 million bales and exports at 15.00 million in 2026/27.

Demand improved on sales, but shipment pace softened. Latest U.S. old-crop upland sales were 185,300 running bales, up 21% from the previous week and 62% above the four-week average, led by Vietnam. New-crop upland sales were 77,100 running bales, mainly to Mexico, Indonesia and Pakistan. Shipments were 268,800 running bales, down 15% on the week and 12% below the four-week average.

USDA/NASS’s latest Crop Progress report shows U.S. cotton planting back on schedule. As of the week ended June 7, the crop was 77% planted, up from 66% a week earlier, equal to the five-year average and ahead of last year’s 75%. Texas reached 68% planted, up from 56%, though still behind last year’s 70% and the five-year average of 71%.

Squaring is also underway. Nationally, cotton was 13% squaring, ahead of both last year and the five-year average at 11%. Texas was 15% squaring, matching last year and slightly ahead of the 14% average. That keeps the crop broadly on track, shifting the market’s focus from seeding pace to stand quality and abandonment risk.

USDA now has the first cotton condition ratings of the season. Nationally, the crop was rated 53% good/excellent, 33% fair and 14% poor/very poor. That is better than last year’s comparable rating of 49% good/excellent and 21% poor/very poor, so the first condition report is not an immediate national abandonment alarm.

Texas remains the key watchpoint. The Texas crop was rated only 45% good/excellent, with 34% fair and 21% poor/very poor. In other words, one-fifth of the Texas crop is already in the two weakest condition categories, keeping Southwest abandonment risk in focus even though national conditions look acceptable.

U.S. cotton export demand improved again in the latest USDA/FAS report, with current-crop upland net sales rising to 185,300 RB for the week ending May 28, up 21% from the prior week and 62% above the four-week average. Buying was led heavily by Vietnam, followed by Pakistan, Turkey, China and Bangladesh, giving the report a constructive tone, though the demand profile remains somewhat Vietnam-led rather than fully broad-based.

Shipments were less supportive than last week. Upland exports fell to 268,800 RB, down 15% week over week and 12% below the four-week average, with Vietnam, Turkey, Pakistan, China and Bangladesh the main destinations. Pima helped offset the softer upland shipment number, with exports reaching a marketing-year high of 18,700 RB. On an all-cotton basis, weekly shipments totaled 296,200 bales, bringing cumulative shipments to 9.50 million bales, still slightly behind last year’s 9.63 million pace. Cumulative all-cotton sales/commitments stood at 12.15 million bales, also slightly below last year but now above USDA’s full-year export target on paper.

USDA’s 12.0 million-bale old-crop export target remains reachable, with May USDA/ERS still carrying 2025/26 U.S. cotton exports at 12.0 million bales. After May 28, shipments need to average roughly 275,000–280,000 bales per week through the end of the crop year. This week’s shipment pace was just above that threshold but below the 300,000-plus pace that would add cushion.

ew-crop demand eased on upland but was not weak overall. 2026/27 upland sales fell to 77,100 RB, led by Mexico, Indonesia, Pakistan, Vietnam and Thailand. All-cotton new-crop sales were stronger at 117,400 bales, helped by 36,800 RB of new-crop Pima sales, mostly to Vietnam. The forward book is improving, but still concentrated, with Mexico and Pakistan each accounting for 18% of MY26 commitments, followed by Turkey, Vietnam, China and Indonesia.

The export outlook is firmer on sales but less emphatic on shipments. We would keep the working full-year U.S. export view around 11.6–11.8 million bales, with upside toward USDA’s 12.0 million if weekly all-cotton shipments hold near 280,000–300,000 bales. A shortfall versus USDA would still add carry-in to next season’s balance sheet, but after this week’s stronger sales and cumulative commitments above 12.15 million bales, the downside risk looks closer to 200,000–400,000 bales rather than a larger miss.

Moisture improved in Texas, but conditions remain uneven. Texas topsoil rated short or very short fell to 39%, down from 51% the prior week, while subsoil short or very short fell to 46% from 57%. Nationally, topsoil short or very short was 34%, while subsoil short or very short was 39%. The improvement is important, but subsoil moisture is still tight enough to keep establishment and abandonment risk alive.

Drought coverage also eased but remains broad. Drought.gov/USDM shows 50.1% of Texas in D1-D4 drought, with 30.6% in severe drought or worse. That is an improvement from the prior week, but the statewide number still understates cotton risk because the market is focused on western producing areas.

Weather remains more helpful for West Texas, but not cleanly bearish. CPC’s latest outlook keeps Texas in the above-normal precipitation category in both the 6-10 day and 8-14 day windows. Confidence is stronger in the 6-10 day outlook at 4/5, but falls to 2/5 in the 8-14 day period. That should help stand establishment where rains verify, while localized storm damage and planting disruption remain offsetting risks.

offee’s front end is still trading scarcity, but the board has shifted harder toward harvest pressure. July arabica settled Tuesday, June 9, at 244.40 c/lb, down 1.50 c/lb, after touching 242.70 c/lb and extending the break to a 19-month nearest-futures low. July robusta settled at $3,293/t, down $40/t, leaving the contract well below the mid-$3,500 test from late May. The bullish case has narrowed back to exchange stocks: ICE arabica certified stocks fell to 412,422 bags as of June 8, a roughly 6-month low, while robusta inventories previously hit a 2-year low of 3,631 lots on May 15 before edging back to 3,732 lots. But thin stocks are now a squeeze risk rather than a trend-setter, as the market increasingly discounts heavier second-half supply.

Brazil remains the cap on any rally. USDA FAS now sees the 2026/27 Brazil crop at a record 71.9 million bags, up 14.1%, with exports forecast up 29.6% to 49.07 million bags; Conab is lower at 66.7 million bags, but still record and up 18%. Private numbers remain even heavier, with Safras & Mercado estimating 75.65 million bags and reporting 23% of the crop harvested by June 2. Vietnam is also leaning bearish for robusta, with Jan-May exports up 7.9% y/y to 922,000 MT and 2025/26 production projected up 6% to 1.76 MMT, or 29.4 million bags. Colombia is the main offset: May output rebounded 29%, but year-to-date production is still down 19% and exports are down 22%, enough to support washed arabica differentials but not enough to change the global balance.

Net-net: coffee has moved down another bracket in the transition trade. Tight nearby stocks can still punish shorts, especially into delivery, but unless arabica first reclaims 250 and then 260 c/lb—and robusta regains $3,350-$3,400 before challenging the old $3,500 area—rallies look tactical and vulnerable to renewed producer selling.

The 254 target region discussed in prior commentary was reached last week but, rather than holding, price promptly collapsed further to the downside. This follow-through indicates an extension within wave (iii), with the next Fibonacci support at the 218–230 region, outlined by the green box.

The extension also implies that the subsequent wave (iv) rally, when it arrives, will peak lower. We have outlined a red area of Fibonacci resistance which doubles as a neckline in a classic head-and-shoulders formation — more on this once a rally emerges.

With the extension carrying below the standard 1.618x projection for wave (iii), a new element to note is an alternate count: wave (v) may have completed within the green box, with waves (iii) and (iv) already having completed in March 2026. We will track this scenario as 'alt (v)', marked up on the chart.

For now, the daily chart simply implies downside continuation toward the next Fibonacci support area at 218–230 in either scenario. This is where we must await signs of technical support.

Arabica’s positioning backdrop remains thin, though the latest move was less aggressively bearish than the prior washout. CFTC futures-and-options data for May 26 showed managed money in Coffee C net long 17,434 contracts, versus roughly 17,900 a week earlier. Funds cut 1,254 longs, but also covered 782 shorts, meaning the decline in net length was driven more by continued long liquidation than by a fresh wave of short selling.

Commercial positioning offered little fresh comfort. Producer, merchant, processor and user accounts were net short 19,963 contracts, slightly wider than the 19,862 net short seen the previous week. Commercial longs rose 997 contracts, suggesting some industry buying on weakness, but commercial shorts increased a little more, by 1,098 contracts, pointing to renewed origin hedging as prices tried to steady.

The report is already stale, and subsequent price action has made the setup harder to call supportive. July Coffee C fell to 259.20 cents a pound on June 2, with arabica as at a 1.5-year nearest-futures low. The broader message is unchanged: arabica’s fund cushion has not rebuilt. Net length has slipped again, to barely 17,400 contracts, leaving the market exposed to further liquidation unless prices can reclaim the 280/285 c/lb area and, eventually, rebuild momentum toward 300 c/lb.

Robusta looks firmer by comparison. The latest London positioning data showed speculative managed money raising its net long to 13,447 lots, equal to about 2.24 million bags, from 11,097 lots in the prior report. That rebuilding fits robusta’s tighter physical tone, but it is not enough on its own to validate rallies. With July robusta at $3,462 a ton on June 2, confirmation still needs to come from nearby spreads and physical demand, not just from a friendlier fund slate.