GSX Weekly Commodity Comment

Key Takeaways:

Coffee has nearby support from logistics and inventories, but Brazil’s new crop and the global surplus outlook are becoming harder to ignore. For both markets, the key question is now whether the Hormuz premium persists long enough to force another leg higher in costs, or whether improving physical flows start to cap the rally.

China remains an important swing factor for the cotton balance. Domestic cotton prices have normalised from earlier extremes, but they remain elevated relative to world values. At current relative pricing, there appears to be some substitution back toward cotton in blended yarns, particularly where polyester staple fibre and other oil-linked downstream inputs have become less competitive.

At the same time, market rumours continue to point to potential Chinese state reserve sales of around 300,000 to 500,000 tonnes, aimed at cooling domestic prices. If these reserve sales materialise, they could pressure local Chinese cotton values and narrow the gap between domestic and international prices.

The broader market implication is two-sided. Lower Chinese domestic prices could reduce the need for imports at the margin, which would be bearish for global trade flows. However, if mills in China, Vietnam and other key spinning hubs continue substituting cotton into blended yarns and reducing their use of PSF, this would be supportive for global consumption.

The key question for the global S&D is whether the fibre-substitution effect is large enough to offset any pressure from Chinese reserve sales. For now, the anecdotal evidence suggests that cotton’s relative competitiveness is improving, but the market will need confirmation through stronger mill demand, import activity and export sales.

Cotton has extended the breakout, but the move is now showing more two-way risk after the May WASDE. July 2026 cotton closed at 86.32 c/lb on 12 May, down 145 points on the day, while December 2026 closed at 86.28 c/lb and March 2027 at 86.78 c/lb. The key change from last week is that July has moved beyond the old 82 to 84 c/lb breakout area and briefly pushed into the upper-80s before pulling back. That leaves the market technically stronger than it was a week ago, but also more vulnerable to profit-taking.

The rally is no longer a simple crude-oil proxy. On 12 May, crude oil was up $2.83 at $102.05, but cotton still closed lower after USDA left old-crop stocks unchanged and introduced a new-crop balance that was supportive but not explosive. That is important: energy and synthetic-fibre costs are still part of the bull case, but the market is now also trading USDA balance-sheet confirmation, managed-money length, weather risk and whether export demand can keep pace.

Spot market indicators have firmed sharply. USDA’s Weekly Cotton Market Review showed seven-market spot quotations averaging 79.04 c/lb for the week ending 7 May, up from 75.29 c/lb the prior week and 64.83 c/lb a year earlier. Spot transactions rose to 18,774 bales, compared with 12,050 the prior week. The ICE July settlement ended that week at 83.00 c/lb, compared with 82.20 c/lb the previous week. Certificated stocks were 182,132 bales as of 7 May, and the Adjusted World Price moved up to 69.59 c/lb.

The technical setup is still bullish, but no longer clean. The first upside test is now the 87.50 to 88.50 c/lb area, with 90 c/lb the next obvious psychological level if weather or energy risk worsens. Support should be watched first around 85 c/lb, then the old breakout zone around 82 to 83.50 c/lb. A close back below that zone would suggest the breakout has lost momentum; holding above it keeps the bull structure intact.

The positioning story has become more aggressive. The latest CFTC futures-and-options data for 5 May showed managed money holding 75,120 long contracts and 23,936 short contracts, leaving a net long of 51,184 contracts. That is up 12,828 contracts on the week and is the largest managed-money net long since April 2024.

Unlike the prior week, this was not just short covering. Managed money added 8,239 longs and cut 4,589 shorts, so the move now reflects fresh length as well as reduced bearish exposure. That is supportive while the market is rising, but it also raises liquidation risk. Cotton is now a fund-length market, and that means the rally increasingly needs confirmation from West Texas weather, export demand, or another leg higher in energy.

Commercial positioning is still the caution point. Producer, merchant, processor and user accounts were 78,439 contracts long and 217,185 short, leaving them net short 138,746 contracts. Their net short increased by about 10,600 contracts on the week. That shows commercial hedging pressure is still meeting the rally, which can cap upside if the fundamental news flow stops improving.

The May WASDE is now the latest official balance sheet, and it is more supportive than April but not outright bullish enough to carry the market alone. USDA left the 2025/26 U.S. cotton balance broadly unchanged, with production at 13.90 million bales, exports at 12.00 million bales and ending stocks at 4.40 million bales. The old-crop stocks-to-use ratio remains heavy at roughly 32%.

The new-crop 2026/27 balance is tighter. USDA projects U.S. planted area at 9.64 million acres, harvested area at 7.38 million acres, yield at 866 lb/acre, production at 13.30 million bales, exports at 12.30 million bales and ending stocks at 3.90 million bales. That pulls the stocks-to-use ratio down to roughly 28%, which is supportive but still leaves weather as the real swing factor.

Globally, USDA projects 2026/27 production at 116.04 million bales, consumption at 121.69 million bales and ending stocks down to 71.84 million bales. That is a clear tightening from 2025/26 ending stocks of 77.27 million bales. Brazil remains the main competitive pressure point: USDA puts Brazil’s 2025/26 crop at 19.50 million bales and exports at 14.70 million bales, then projects 2026/27 exports at 15.00 million bales despite lower production of 17.50 million bales.

Planting progress is still not the immediate problem. NASS reported the U.S. cotton crop 29% planted as of 10 May, one point ahead of the five-year average. Texas was 27% planted versus a 26% average, while Georgia was 24% planted versus a 25% average. Louisiana remains behind at 25% versus a 45% average, but Mississippi, Arkansas, Tennessee and several other Delta states are running ahead. Drought.gov

The issue is still establishment and abandonment risk, especially in Texas. NASS shows Texas topsoil moisture at 54% short or very short and subsoil moisture at 60% short or very short. Drought.gov shows 68.5% of Texas in drought, including 31.0% in severe drought, 15.8% in extreme drought and 0.5% in exceptional drought. Conditions have improved from last week, but they are still dry enough to keep abandonment risk embedded in the price.

NASS planting intentions still put 2026 U.S. all-cotton acreage near 9.64 million acres, with Texas at 5.52 million acres, or about 57% of the U.S. total. If Texas abandonment stayed near a manageable 25%, harvested area would be about 4.1 million acres. If drought pushed abandonment back toward the 2022-type level of roughly 69%, harvested area would fall to around 1.7 million acres. That is a difference of about 2.4 million acres. Using a simple 650 to 750 lb/acre yield assumption, the production swing is still roughly 3.3 to 3.8 million bales, enough to materially tighten the U.S. balance sheet.

U.S. cotton export demand remains constructive, but the latest report was less supportive than the prior week’s rebound. As of 13 May, the latest USDA export-sales report is still for the week ending 30 April; the week ending 7 May report is due on 14 May. For the 30 April week, upland net sales fell to 123,300 RB, down 24% week on week and 35% below the prior 4-week average. Upland exports were still solid at 327,500 RB, but were down 15% from the prior week and 1% below the 4-week average. Vietnam again led shipments, followed by Bangladesh, Pakistan, Turkey and China.

New-crop upland sales slowed to 48,400 RB, mainly to Guatemala and Indonesia, partly offset by reductions for Vietnam. Pima also cooled, with current-crop net sales at 11,500 RB, down 47% week on week, while Pima exports were 14,800 RB, down 17% from the prior week but still 52% above the 4-week average. In 480-lb bale terms, the National Cotton Council puts weekly sales at 138,900 bales and shipments at 352,600 bales, taking cumulative 2025/26 sales to 11.592 million bales and cumulative shipments to 8.252 million bales.

The broader picture is still mixed. Shipments are good enough to keep USDA’s 12.0 million bale old-crop export target alive, but sales have not yet confirmed a stronger demand trend. Cumulative sales are also slightly behind last year’s 11.811 million bales at the same point. We are therefore keeping our full-year U.S. export forecast around 11.5 to 11.6 million bales for now, with upside risk if shipments stay above 300,000 bales per week and net sales recover.

Brazil remains the main competitive headwind. USDA and FAS still point to Brazil as the world’s largest cotton exporter, with 2026/27 exports forecast around 15.0 million bales. That limits how bullish the U.S. export story can become unless demand improves broadly or U.S. basis becomes more competitive.

NOAA’s latest weather signal is more two-sided than last week. Recent rain has produced some drought improvement across Texas and Louisiana, and CPC now flags a slight risk of heavy precipitation for parts of the Southern Plains around 20-21 May. If that rainfall reaches West Texas cotton areas, it would pressure the weather premium. If it misses, the market is likely to keep pricing abandonment risk.

Coffee price action has turned more two-sided. Nearby tightness is still real, but the market is increasingly trading that tightness against a much larger Brazil/Vietnam supply story. On the latest Tuesday close, July arabica fell 2.15 c/lb, or 0.76%, while July robusta fell $22/t, or 0.63%, with dollar strength pressuring both contracts. The important point is that prices fell even as certified stocks kept tightening.

ICE arabica stocks have fallen further, to 471,831 bags, a 2.5-month low. ICE robusta stocks have also tightened again, falling to 3,664 lots, a 2-year low. That is lower than the 3,755 lots referenced last week, so the front-end inventory story has not gone away. It is still supportive, especially for nearby spreads and for roasters needing prompt cover.

The offset is that physical flow is starting to improve. Cecafé reported Brazil exported 3.122 million 60-kg bags of coffee in April, up 0.6% year on year. The mix matters: green coffee exports were down 1.3%, arabica exports fell 15.9% to 2.26 million bags, but robusta/conilon exports jumped 374% to about 497,000 bags as new-crop canéfora began moving into the pipeline. That keeps arabica relatively better supported than robusta, but it also confirms that Brazil’s robusta/conilon supply is starting to loosen.

Vietnam is also leaning bearish for robusta. Jan-Apr exports rose 15.8% year on year to 810,000 tonnes, or roughly 13.5 million bags, with April alone at 220,000 tonnes. Revenue was still down 7% year on year, which tells the same story as futures: volumes are improving while prices are losing some of the extreme scarcity premium.

Arabica remains caught between low certified stocks and improving forward supply. Colombia is still a nearby washed-arabica support, but the April data were less severe than the first-quarter collapse. Colombian production was reported at 697,000 bags in April, down only 1% year on year, compared with a 33.5% fall in Q1. Exports were weaker, however, down 15% year on year to 682,000 bags, so availability is still not fully comfortable.

Brazil weather is still a support marker for arabica. Minas Gerais rainfall has stayed below normal, with Somar reporting just 0.8mm in the week ended 10 May, around 16% of the historical average. That limits the market’s willingness to price a completely risk-free Brazil crop, even though the broader production forecasts remain heavy.

The forward supply story is still the main bearish anchor. StoneX projects Brazil’s 2026/27 crop at a record 75.3 million bags, including 50.2 million bags of arabica and 25.1 million bags of conilon. StoneX also sees global 2026 production near 182.5 million bags versus consumption of 172.5 million bags, implying a surplus of about 10 million bags. Other private forecasts are in the same broad area, with CTA at 71.4 million bags and Marex near 75.9 million.

Net-net, coffee is no longer trading a simple low-inventory story. Certified stocks are still tight enough to support the nearby market, especially if Hormuz-related freight and insurance costs stay elevated. But rallies now face heavier resistance because Brazil’s new crop is arriving, Vietnam export flow is improving, and the 2026/27 balance is being framed as surplus. The front end can still squeeze, but the second-half outlook is becoming more comfortable.

ICE front month:

Spreads:

Calendar Spread Matrix Arabica and Robusta: