Summary
Key Takeaways:
Geopolitics driving volatility - headline risk and Middle East tensions continue to set the macro backdrop.
Cotton rally is technical-led: Prices surged on short-covering and macro support despite a bearish WASDE and higher global stocks.
Weather is the swing factor: Dryness in Texas and weak Indian monsoon outlook pose key upside risks to supply.
Demand holding up: Strong U.S. export momentum could push shipments beyond 12 million bales if sustained.
Coffee: tight now, looser ahead: Near-term supply remains constrained (especially robusta), but a larger Brazil crop caps upside.
Cotton rallied toward 74 c/lb despite a broadly bearish April WASDE. The USDA raised global production by roughly 900,000 bales and increased ending stocks by about 700,000 bales, taking world stocks to 77.0 million bales. The U.S. balance sheet was left unchanged for the second consecutive month. Some minor reconciliation between ginning, classing, and the production and export forecasts is still expected in the May report.
The main supply-side risk remains India. The Indian Meteorological Department has forecast 2026 monsoon rainfall at just 92% of the long-period average, the weakest initial outlook in nearly 30 years. If realised, this forecast could threaten Indian production at a time when global stocks-to-use is already tightening. Meanwhile, U.S. planting is 7% complete, broadly in line with the normal seasonal pace.
Arabica remains supported by dry conditions in Brazil, with Minas Gerais rainfall running at only 20% of normal, alongside a stronger Brazilian real that is discouraging producer selling. Cecafé also reported March exports down 7.8% year on year to 3.04 million bags. May arabica settled at 302.65 c/lb. Even so, gains are being capped by elevated ICE arabica inventories and a gradually improving broader supply outlook, as reflected in recent ICO assessments.
Robusta continues to show the tightest nearby fundamentals. ICE robusta stocks fell to 3,911 lots, or about 652,000 bags, on 14 April, the lowest level in around 15 months. May closed at $3,351/tonne, up 3.19% on the day. The new canéphora crop is only just beginning to arrive, so while medium-term supply is improving faster than arabica, the nearby market remains tight.
Macro conditions have also turned more supportive. The U.S. dollar index fell to around 98, while oil prices eased on optimism around U.S. Iran talks, with Brent near $94.50 and WTI around $90.60. March PPI came in softer than expected at +0.5% month on month versus consensus of 1.1%. Still, markets are pricing only about a 33% chance of a Fed cut this year, and Chicago Fed President Goolsbee suggested cuts could be pushed out as far as 2027. In a downside scenario, the IMF sees 2026 global growth slowing to 2.5%, with inflation rising to 5.4%.
Cotton
Cotton Price Action
Cotton rallied sharply through the week, with May pushing from ~71 to a high of 75.5 c/lb, the highest level since May 2024. The move was driven by aggressive managed money short-covering, with specs liquidating another 10,206 contracts in the week of April 7 to reduce the near-record net short to just 2,020 contracts.
Geopolitical tailwinds added fuel, the breakdown of US-Iran negotiations and a US blockade of the Strait of Hormuz pushed crude oil higher, lifting cotton via the polyester substitution channel, while broad dollar weakness also provided support. On the fundamental side, the USDA's April WASDE raised global 2025/26 production by 900k bales (China, India, Pakistan) and consumption by 560k, leaving the US balance sheet unchanged. While mildly bearish, the report was but largely shrugged off.
Drought conditions persist across the western and southwestern Great Plains, keeping the Texas abandonment risk front of mind. Planted area may be up ~4% per the Prospective Plantings report, but much of that increase sits in the most vulnerable acreage. Export demand remained supportive, with net upland sales of 319,600 RB led by Vietnam (132,500 RB), while Brazil posted record March shipments up 45% YoY, reinforcing the competitive dynamic in global trade.
The rally is now approaching technical resistance at the Q3 2024 high of 74.55, a level already breached intraday. With the spec short largely unwound and prices approaching 76, the market will need fresh fundamental catalysts or sustained weather stress to maintain momentum from here.
The recent rally has reduced some of the carry in the front of the curve, with backwardation emerging from K27 onwards.
This rally has been driven mostly by specs liquidating, with specs buying back ~35k lots. Looking at the curve, it is clear the market is no longer in carry from the March 2027 contract.
ICE Cotton No.2 front month:
Spreads (N/Z):
Cotton Positioning
CFTC Managed Money: Managed Money has reduced its short position as the market has rallied, covering ~30k lots over the past three weeks.
Commercials, by contrast, appear to have sold into the rally, adding roughly ~35k lots over the same period.
US Cotton Export & Sales
US cotton export demand has strengthened sharply over the past two weeks. In the week ending March 19, upland shipments reached a marketing-year high of 400,600 running bales, up 46% on the week and 43% above the 4-week average, led by Vietnam, Pakistan, Bangladesh, India, and Turkey.
For the following week ending April 2, upland net sales came in at 319,600 RB. While lower week on week, this was still well above the recent average, with Vietnam again the leading buyer. Pima sales were also strong at 30,900 RB, a marketing-year high, driven mainly by Vietnam.
We have raised our full-year US export forecast to around 11.84 million bales, up 0.54 million from our prior estimate. If this pace is sustained, exports moving above 12 million bales now looks increasingly likely.
We have raised our full-year US export forecast to around 11.84 million bales, up 0.54 million from our prior estimate. If this pace is sustained, exports moving above 12 million bales now looks increasingly likely.
The USDA made no changes to the US cotton balance sheet in the April WASDE, leaving exports and ending stocks unchanged at 4.4 million bales. The only revision was a higher season-average farm price of 61 cents/lb.
We still expect May or June to be the more likely window for USDA to lift exports, once several more weeks of strong shipment data is captured.
That said, the broader backdrop remains bearish. Ending stocks are still relatively heavy, and USDA’s first 2026/27 outlook points to higher US supply. Brazil remains a major competitive headwind, with another very large crop expected. What has gotten the market excited is the very dry and hot weather in Texas and the potential for large abandonment %, alongside Polyester Fibre pricing at its highest level since 2022…
Cotton On-Call
No major outliers in the report other than there remains a large number of OC purchases in the new crop December contract.
Outlook for Cotton
Bull Case
BACA gains further legislative momentum. tThe House bill now has 60+ co-sponsors and cleared a Senate Agriculture Committee hearing in March. Passage would structurally lift U.S. cotton demand by incentivising brands to source domestically via tax credits.
Persistent drought and low subsoil moisture across Texas and the western Great Plains drive elevated abandonment. With most of the 4% planted area increase concentrated in the most vulnerable acreage, effective harvested area could end up flat or lower
Elevated input costs, particularly urea and fuel, continue to pressure producer margins, discouraging aggressive planting and limiting yield potential where crops are established
Further escalation in Iran-Hormuz tensions keeps crude and polyester feedstock prices elevated, supporting cotton's competitive position as a natural fibre alternative.
Bear Case
Demand destruction deepens as the Middle East conflict raises energy and shipping costs for the broader textile supply chain, weighing on downstream consumption
Synthetic fibres continue to gain market share as PSF pricing declines relative to cotton, particularly in price-sensitive Asian markets where polyester penetration is already high
Weather cooperates across the US Cotton Belt, adequate rainfall in Texas and the Southeast delivers strong yields and minimal abandonment, translating the planted area increase into a meaningful production bump
Base Case
With spreads still in a wide carry, speculators have limited incentive to press the long side aggressively, though the near-record net short has now been largely unwound to just ~2,000 contracts, removing one of the key catalysts that drove the recent rally
Crop progress and condition reports become the dominant driver from here; the market is likely to trade sideways until there is greater clarity on Texas abandonment and US yield potential heading into summer
Watch for the June acreage and crop condition data as the next major inflection point — the second half of the year offers better opportunities once the planted vs harvested area picture crystallises
Coffee
Coffee Price Action
Arabica was volatile this week. May KC dropped 4% on Tuesday 7 April to 286.10 c/lb, the lowest since early March, after Marex, Sucafina and StoneX all published very bearish Brazil 2026/27 crop estimates. But the market then bounced hard, rallying nearly 14 cents and finishing back above $3 by Friday as weather worries returned.
Minas Gerais got just 4.2mm of rain last week, around 20% of normal, which cast doubt on the more optimistic crop outlook. A stronger Brazilian real also reduced farmer selling. At the same time, nearby supply still feels tight, with ICE certified stocks low by historical standards and Colombia’s March production down 29% year on year.
So, the market is still being pulled in two directions: a big Brazil crop is coming, but nearby physical tightness has not gone away.
ICE Arabica front month:
ICE Robusta front month:
Spreads:
Arabica K/N:
Spreads Robusta:
Robusta K/N:
Physical Pricing
Brazil differentials: Robust has come off dramatically, whilst Arabica stays strong. If someone is short those Fine Cup Diffs they are certainly not having a good month…..
Central American and Colombian Diffs continue to strengthen
Indonesian and Vietnamese diffs are flat WoW
Certified stocks: have slide ~50k bags however for Arabica and they have declined around ~80k bags in the last month
Coffee Positioning:
For Arabica CFTC Managed Money: Longs have gradually been building up their position in the recent rally and during the sell off.
For Robusta CFTC Managed Money: Robusta has seen a slight decrease in MM position and increase in Commcerical buying.
Exports:
Brazil and Colombia export pace: Much slower YoY due to smaller crop, tariffs and high differentials.
Honduras and Indonesian Export pace: Honduras has been shipping more coffee faster this market year due to a favourable basis and weaker currency.
Vietnam exports: Exports are healthy as demand ahead of the arrival of Conilon. Uganda has been overall strong this market year.
Outlook:
Bull Case
Weather shock in Brazil. Minas Gerais received just 4.2mm of rain last week (20% of historical average), and if dryness persists through the critical pre-harvest window, it undermines the 75m+ bag consensus just as the biennial off-year already makes the crop structurally vulnerable
Hormuz disruption escalates following the breakdown of US-Iran negotiations, transit times for Southeast Asian coffee already extended by up to 21 days, with war risk insurance and bunker surcharges neutralising the freight savings expected from improved supply
Colombia's production collapse deepens. March output fell 29% YoY to just 754,000 bags, with the first quarter down 33%, tightening the nearby Arabica pool and supporting washed differentials
Geopolitical risk premium pulls macro and passive money into the commodity complex; specs have already rebuilt net-long positions to over 42,000 contracts post-Hormuz and have room to add further
Curve deepens into backwardation - Sep/Dec spreads rally, triggering CTA trend-following length that amplifies flat price; roasters caught short coverage are forced to chase if the crop disappoints
Brazilian farmers continue to hold back sales with BRL at a 2-year high against USD, keeping origin offers thin and basis elevated alongside flat price
Bear Case
Brazil 2026/27 crop comes in at or near record levels, with Marex at 75.9m bags, Sucafina at 75.4m (49.7m Arabica, 25.9m Robusta), StoneX at 75.3m. Sucafina's crop tour highlights record potential in both Cerrado and Rondonia and weather conditions described as "nearly ideal".
StoneX projects a 10m bag global surplus, Rabobank sees 8.6m bags, the largest in six years, projecting Arabica prices down roughly a third by late 2026.
Brazilian farmer capitulates on old crop as new harvest approaches and export volumes surge after a ~17% YoY decline through early 2026; Cooxupé already guiding exports down 10% this year, but that reverses quickly once harvest pressure builds
Iran conflict proves short-lived, oil normalises, freight and insurance ease, certified stock rebuild accelerates from the current ~550,000 bags as EUDR postponement removes a key barrier to European grading.
US tariff removal normalises Brazilian trade flows, roasters return to regular procurement and unwind the spot premiums embedded in Western warehouse inventories.
Curve flips to contango, carry economics improve, CTA money reverses. The 42,000 contract net long becomes a source of selling pressure rather than support.
Base Case
The outlook skews closer to the bear case structurally, but the market won't fully price 2026/27 supply until new-crop harvest volumes are physically confirmed. Brazilian Robusta harvest is just beginning, and Arabica peak harvesting is still weeks away.
Near-term focus on Sep/Dec and Dec/Mar spreads, with curve shape acting as the leading signal for whether nearby tightness is easing or intensifying.
Elevated Brazilian and Colombian diffs look increasingly like a structural short rather than genuine scarcity; expect compression once new-crop volumes hit the pipeline, with conilon diffs likely the first to crack as farmers see crop viability, Arabica follows with a lag.
Certified stocks at ~550,000 bags are off the lows and rebuilding gradually, aided by the likely EUDR postponement opening European certification; the draw narrative is losing momentum
The $2.85–$3.00 range acts as the near-term equilibrium — the market needs either confirmed weather damage or confirmed harvest arrivals to break the deadlock, with the second half of the year offering clearer directional conviction as the surplus outlook either firms or falters
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