Summary
Key Takeaways:
Geopolitics still the driving factor in markets: Middle East risk remains central, with Brent reported at $101.76/bbl and WTI at $92.82/bbl on 23 April as U.S.-Iran talks showed little progress and shipping restrictions through Hormuz remained in place. This keeps freight, insurance, fuel and synthetic fibre cost risk elevated across softs.
Cotton has moved from technical squeeze to weather and macro risk: Cotton has extended toward the 78 to 80 c/lb area, the highest since May 2024, supported by speculative buying, Texas drought risk, oil strength and concerns around global shipping. The short-covering impulse is less fresh now, with managed money flipping from a near-record short into a net long position.
The official cotton balance sheet is still not bullish: USDA left the U.S. 2025/26 cotton balance sheet unchanged in April, with production at 13.92 million bales, exports at 12.0 million and ending stocks at 4.4 million. Globally, April WASDE raised production to 121.87 million bales and ending stocks to 77.04 million, so the bull case still needs weather stress, stronger exports or continued strong PSF pricing in China to support it.
Weather is now the main cotton swing factor: U.S. cotton planting is progressing broadly on schedule, but drought across Texas and the Southern Plains remains the key risk. reported 89% of Texas in drought as of 22nd April, with soil moisture across most of Texas, Oklahoma and western Kansas below the 10th percentile.
Coffee remains tight nearby but structurally looser ahead: Robusta nearby fundamentals are still tight, with ICE robusta inventories falling to a 16-month low, while arabica has bounced on Brazil weather concerns and Middle East logistics risk. However, the bear case has firmed as Brazil 2026/27 estimates cluster around 75.3 to 75.9 million bags and StoneX projects a roughly 10 million bag global surplus.
The market still reacting to stalled U.S.-Iran diplomacy and shipping restrictions through the Strait of Hormuz. Which is keeping cotton supported due to higher PSF prices substitution channel and coffee supported through higher freight, insurance and fuel costs.
Inflation risk has also not gone away. U.S. PPI final demand rose 0.5% in March and was up 4.0% year on year, with goods prices rising 1.6% on the month. Chicago Fed President Austan Goolsbee also warned that rate cuts could be delayed into 2027 if oil prices keep inflation from returning to target.
Cotton
Cotton Price Action
Cotton has extended last week’s rally, pushing into the 79 to 80 c/lb range and reaching its highest level since May 2024. Trading Economics reported cotton at 79.02 c/lb on 23 April, up 16.85% over the past month. The move has been supported by speculative buying, drought concerns in Texas, strong Brazilian exports, firmer oil prices, and ongoing global shipping risks.
That said, the market now looks more extended than it did a week ago. May 2026 cotton settled at 76.33 c/lb on 22 April, with July at 78.64 c/lb and December at 80.16 c/lb, after pulling back from recent highs. ICE certified cotton stocks were reported at 165,860 bales, while the Cotlook A Index stood at 89.45 c/lb.
The key change is that this is no longer just a short-covering story. The April CFTC report showed managed money holding 56,769 long contracts and 39,911 short contracts in cotton futures, leaving a net long of 16,825 contracts. Shorts were cut by 12,900 contracts on the week. That suggests much of the squeeze dynamic has now played out, and the market will need fresh fundamental confirmation from weather, exports, or polyester pricing to justify another leg higher.
The official balance sheet, however, remains a headwind. USDA’s April WASDE left the U.S. cotton balance sheet unchanged, with production at 13.92 million bales, exports at 12.0 million, and ending stocks at 4.4 million bales. Globally, USDA raised 2025/26 production to 121.87 million bales, consumption to 119.14 million, and ending stocks to 77.04 million bales. That is not a particularly tight global balance sheet, so the bull case still depends heavily on weather, especially continued drought in Texas and worsening crop conditions, to materially tighten the outlook for 2026/27.
A simple back-of-the-envelope calculation shows why Texas matters so much. Texas accounts for roughly 5.5 million bales of the 9.3 million-bale U.S. crop, and its 10-year average abandonment rate is around 20%. If drought persists and abandonment moves toward levels seen in 2022, when Texas abandonment was about 60%, the U.S. balance sheet could tighten materially. In that kind of scenario, the market could start to look more like 2022, when cotton futures peaked near 150 c/lb and U.S. carryout fell to around 3 million bales.
A simple back-of-the-envelope calculation shows why Texas matters so much. Texas accounts for roughly 5.5 million bales of the 9.3 million-bale U.S. crop, and its 10-year average abandonment rate is around 20%. If drought persists and abandonment moves toward levels seen in 2022, when Texas abandonment was about 60%, the U.S. balance sheet could tighten materially. In that kind of scenario, the market could start to look more like 2022, when cotton futures peaked near 150 c/lb and U.S. carryout fell to around 3 million bales.
Cotton Positioning
CFTC Managed Money: Managed Money has reduced its short position as the market has rallied, covering ~28k lots over the past three weeks. The move upwards has been primarily driven by MM Longs buyings and shorts covering.
Commercials, by contrast, appear to have sold into the rally, adding roughly ~30k lots over the same period.
US Cotton Export & Sales
US cotton export demand remains constructive, although this week’s report was less interesting than the prior two. For the week ending April 9, upland net sales eased to 161,100 RB, down 50% week on week and 41% below the prior 4-week average, while shipments still held at a solid 305,000 RB. Vietnam again led buying, followed by Turkey, Pakistan, Bangladesh, and India. Pima also cooled after the prior week’s spike, with net sales at 6,500 RB and exports at 6,100 RB.
We are keeping our full-year U.S. export forecast at around 11.83 million bales for now. The latest data still support upside risk, but after this week’s softer sales pace we are unlikely to forecast a number above 12 million unless the pace picks. USDA made no April balance-sheet changes, leaving 2025/26 U.S. exports at 12.0 million bales and ending stocks at 4.4 million bales, while raising the season-average farm price to 61 cents/lb. We still think May or June is the likelier window for USDA to revise exports higher if shipments stay firm
he broader picture is still mixed at best. U.S. ending stocks remain relatively heavy, Brazil is forecast to ship a record 14.5 million bales and remain the world’s largest exporter, and USDA’s initial 2026/27 outlook points to a modest rebound in U.S. planted area. At the same time, weather risk has not disappeared: U.S. cotton planting was 11% complete as of April 19, up from 7% a week earlier, with Texas at 16%, while 89% of Texas and 99% of Oklahoma were in drought as of April 22nd and above-normal temperatures are still across much of the Southern Plains.
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
Persistent drought across Texas and the Southern Plains drives elevated abandonment and cuts effective harvested area. With soil moisture already poor and April to June rainfall odds unfavourable for the Panhandles, the market will stay sensitive to any continuation of hot, dry conditions.
Oil remains elevated because of Hormuz disruption and U.S.-Iran risk. This supports cotton through higher synthetic fibre costs, higher freight costs and broader commodity risk premia.
U.S. export shipments remain strong enough for USDA to lift exports in May or June. That would tighten the U.S. carryout from the current 4.4 million bale level and validate some of the recent price strength.
Speculators have flipped long, but not excessively so compared with prior bull markets. If weather deteriorates, trend-following and momentum buying can still add length.
Bear Case
The short-covering catalyst has largely played out. Managed money is now net long cotton futures, so the positioning tailwind has become less powerful and could become a liquidation risk if the weather premium fades.
The official balance sheet remains heavy. USDA has global ending stocks at 77.04 million bales and U.S. ending stocks at 4.4 million, while Brazil is expected to remain the world’s largest cotton exporter with record exports of 14.5 million bales.
Rains arrive across Texas and the Southeast, reducing abandonment risk and allowing the 4% increase in U.S. planted area to translate into a larger crop. In that scenario, the market would struggle to defend the recent rally.
High energy and freight costs eventually damage downstream textile demand, particularly in price-sensitive Asian markets. Cotton would then lose support from the demand side even if oil remains high.
Base Case
The cotton market has moved from a technical recovery into a weather-risk market. The balance sheet is not bullish enough to justify a sustained rally without confirmation from West Texas weather or stronger export shipments. Prices can remain supported while drought and oil risk persist, but the upside becomes harder to chase now that managed money has already covered shorts and flipped net long.
The key trigger over the next few weeks is not the April WASDE, which is already known, but crop condition, Texas rainfall, abandonment risk and whether export shipments continue at a pace that forces USDA to raise the 12.0 million bale export forecast.
Coffee
Coffee Price Action
Near-term fundamentals remain tight, especially in robusta. ICE robusta inventories fell to 3,755 lots, a 16-month low, while the new Brazil canéphora crop is only starting to move into the pipeline. That keeps the front end supported even though the medium-term supply outlook is improving.
Arabica is still being pulled in opposite directions. On the bullish side, Minas Gerais received only 4.2mm of rain in the latest reported week, around 20% of the historical average, which is enough to question overly optimistic crop assumptions. Colombia’s March coffee production also fell 29% year on year to 754,000 bags, tightening the nearby washed arabica pool.
On the bearish side, the coming Brazil crop looks large. Sucafina projects Brazil 2026/27 production at 75.4 million bags, up 15.5%, with arabica at 49.4 million and robusta at 26.0 million. StoneX projects Brazil at 75.3 million bags and sees global production at 182.5 million bags versus consumption of 172.5 million, implying a roughly 10 million bag surplus. Marex is also at 75.9 million bag
ICE front month:
Spreads:
Calendar Spread Matrix Arabica and Robusta:
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…..
Certified stocks: have slide ~30k bags for Arabica and for Robusta and they have declined around ~70k 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 and Commercials have been relatively unchanged. There is not a dramatic position in one direction.
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
Brazil weather turns from a talking point into a production problem. The market has built in a very large crop, so even modest confirmation of dryness stress in Minas Gerais or frost risk later in the season would challenge the 75 million-plus bag consensus.
Robusta nearby tightness persists. ICE robusta inventories are already at a 16-month low, and if Brazil conilon arrivals are slower than expected or Vietnamese offers thin out, the front end can stay supported.
Colombia does not recover quickly. March production was down 29% year on year, and a prolonged shortfall would keep washed arabica differentials firm and limit downside in KC.
Hormuz disruption keeps freight, insurance and oil costs elevated, which raises the cost of moving coffee and supports a broader commodity risk premium.
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".
Brazil’s crop is confirmed near record levels. With Sucafina, StoneX and Marex clustered between 75.3 and 75.9 million bags, the market has a clear structural supply threat if harvest arrivals validate those estimates.
The global surplus becomes unavoidable. StoneX projects production at 182.5 million bags and consumption at 172.5 million, implying a roughly 10 million bag surplus. If that materialises, rallies are likely to be sold into the second half of the year.
Vietnam exports remain strong and Brazil conilon volumes accelerate. Vietnam exports were already up 14% year on year in the first quarter, which supports the idea that robusta tightness is a nearby issue rather than a lasting structural shortage.
Brazilian exports recover as new crop moves through the system. March exports were still down 7.8% year on year, but that becomes less supportive once harvest pressure builds and origin selling increases.
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.
Coffee remains tight nearby but structurally bearish into the second half. The market is not yet ready to fully price the surplus because robusta inventories are low, Brazil exports are still slow and Colombia production has disappointed. But the forward balance sheet is becoming increasingly difficult to ignore.
The cleanest base case is a choppy range rather than a straight-line trend. Rallies above the recent range need either confirmed Brazil weather damage, renewed Hormuz escalation or another leg lower in certified stocks. Breaks lower need physical harvest confirmation from Brazil and clear evidence that differentials are compressing.
For now, Arabica should be treated as a weather and logistics market in the short term, but a supply-rebuild market into the second half. Robusta remains the tighter nearby contract, but it is also the one most exposed to a reversal if Brazil conilon and Vietnam flows keep improving.
