GSX Weekly Commodity Comment

Key Takeaways:

Cotton remains a weather market, but the board still hasn’t got the break it needs. Planting reached 86% by June 14, close to the five-year average, while squaring ahead of normal at 19%. Conditions slipped on good/excellent to 50%, while poor/very poor improved to 11%. Texas remains the fault line: 80% planted versus 85% average, with 15% poor/very poor and 42% good/excellent. The High Plains risk is alive, but not yet visible enough in the weekly condition line.

USDA has 26/27 consumption at 121.76m bales, production at 116.04m, and ending stocks falling to 71.13m. U.S. exports were decent too: 207,000 RB sold and 300,100 RB shipped during the week. Supportive, but not explosive. Cotton needs either a Texas condition break or crude back on the boil to move hard.

Brazil continues to provide the record-crop anchor: USDA/FAS forecasting 71.9m bags and Safras at 75.65m. However, the harvest is running behind schedule, and heavy rain in Minas has raised flow and quality risk. July arabica bounced hard back toward 273–274c, with cert stocks still thin: about 397,000 bags in New York and 665,000 bags equivalent in London. The crop caps rallies, but shorts are no longer getting a free ride.

Brent has eased back off toward $79, taking some heat out of the polyester-cost leg, although the Hormuz physical-risk case has not disappeared. Rates are still a drag, with 10s around 4.4% and December hike risk still priced.

July 2026 cotton closed Friday, 12 June, at 72.94 c/lb, with December 2026 at 76.42 c/lb and March 2027 at 77.64 c/lb. Versus the 5 June closes used last week, July fell 81 points, December lost 106 points and March dropped about 116 points, showing that weakness has broadened across the board rather than staying confined to the nearby contract.

By Tuesday, 16 June, cotton had bounced, but the rebound still did not repair the technical damage. July 2026 closed at 75.01 c/lb, December 2026 at 77.75 c/lb and March 2027 at 79.06 c/lb, leaving the board still below the old 82–84 c/lb breakout area. The broader cotton benchmark was quoted around 77.72 c/lb on 16 June, up 1.19% on the day but still down 7.14% over the month, keeping prices well below the mid-May upper-80s highs.

Spot indicators continue to confirm the weaker tone. USDA’s Weekly Cotton Market Review showed seven-market spot quotations averaging 67.44 c/lb for the week ending 11 June, down 397 points from 71.41 c/lb the previous week, though still above 62.71 c/lb a year earlier. Daily spot quotations ranged from a high of 68.79 c/lb on 5 June to a low of 66.14 c/lb on 10 June. Liquidity also softened: spot transactions totaled 3,172 bales, down from 8,583 bales the prior week and below 5,266 bales a year earlier.

ICE July ended the USDA review week at 72.49 c/lb, down from 74.89 c/lb the week before. Season-to-date spot transactions remain well ahead of last year at 1.51 million bales versus 967,719 bales, but the message from cash markets is still bearish: nearby weakness has not yet been reversed, and the recovery remains corrective rather than convincing.

Note that the gap up is due to CT’s contract roll this week. Some upside is evident in cotton futures as we trade within the target region of 70. There is still nothing conclusive to consider wave 2 complete for this multi-week downtrend; however, this is where we need to remain vigilant for a trend reversal.

Drilling down to a 4-hour chart, cotton continues drifting around the 70 target region; however, there is no sign of a micro five-wave move up. This is required before we can consider a bottom for wave 2 at the 0.618 retracement. One alternate scenario is that this is wave (a) bottoming, with a (b) and (c) still to follow to complete wave 2 — quite a bit less probable, but worth putting on the radar. For now, we need to see a short-term five-wave move up to consider wave 2 complete, and expect a strong, multi-month rally in macro wave 3.

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, but the June WASDE was slightly more supportive than the May baseline. For 2025/26, USDA kept production at 13.90 million bales but raised exports to 12.20 million, cut domestic use to 1.55 million and lowered ending stocks to 4.20 million, leaving stocks-to-use at about 30.5%. For 2026/27, USDA left production at 13.30 million bales, exports at 12.30 million and domestic use at 1.60 million, but reduced ending stocks to 3.70 million because of the smaller old-crop carryout. That cuts new-crop stocks-to-use to about 26.6%. The lower carryout is supportive, and USDA’s new-crop farm price forecast remains at 73 cents/lb versus 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 still already built into USDA’s forecast. The June balance sheet continues to use 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 again notes harvested area is based on 10-year regional abandonment averages, with the Southwest adjusted for moisture conditions. 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 after the June update. USDA projects 2026/27 world production at 116.04 million bales, consumption at 121.76 million and ending stocks falling to 71.13 million from 76.63 million in 2025/26. Still, Brazil remains a major competitor, with 2026/27 production projected at 17.50 million bales and exports at 15.00 million.

Demand improved on both sales and shipments. Latest U.S. old-crop upland sales were 207,000 running bales, up 12% from the previous week and 60% above the 4-week average, led by Vietnam, Pakistan, India and Indonesia. New-crop upland sales were strong at 298,700 running bales, mainly to Vietnam, Nicaragua, Turkey and Mexico. Shipments were 300,100 running bales, up 12% on the week and 3% above the 4-week average.

USDA/NASS’s latest Crop Progress report shows U.S. cotton planting moved ahead but is now slightly behind average. As of the week ended June 14, the crop was 86% planted, up from 77% a week earlier and ahead of last year’s 84%, but behind the 5-year average of 88%. Texas reached 80% planted, up from 68%, but still behind both last year’s 81% and the 5-year average of 85%.

Squaring is running ahead of normal. Nationally, cotton was 19% squaring, up from 13% a week earlier and ahead of both last year’s 18% and the 5-year average of 17%. Texas was 20% squaring, up from 15%, slightly behind last year’s 21% but ahead of the 18% average. Setting bolls has also started, with the national crop at 2% and Texas at 3%, both slightly behind the 5-year averages. That keeps the crop broadly on track, but the market’s focus is shifting from seeding pace to stand quality, early fruiting and abandonment risk.

USDA’s second cotton condition rating of the season was mixed but not alarming. Nationally, the crop was rated 50% good/excellent, down from 53% a week earlier, while fair rose to 39% from 33%. Poor/very poor improved to 11% from 14% last week and remains much better than last year’s 19%. Texas was rated 42% good/excellent, 43% fair and 15% poor/very poor. The condition trend bears watching, but the latest report is still not an immediate national abandonment alarm.

U.S. cotton export demand strengthened again in the latest USDA/FAS report. Current-crop upland net sales rose to 207,000 RB for the week ending June 4, up 12% from the prior week and 60% above the four-week average. Vietnam remained the lead buyer, but demand broadened with solid purchases from Pakistan, India, Indonesia and Bangladesh.

Shipments also improved. Upland exports increased to 300,100 RB, while Pima exports hit a marketing-year high of 22,900 RB. All-cotton shipments totaled 332,700 bales, lifting cumulative shipments to 9.84 million bales, still slightly behind last year but now moving at a pace supportive of USDA’s target.

USDA raised its old-crop U.S. cotton export forecast to 12.2 million bales. To reach that level, shipments need to average roughly 295,000 bales per week through the end of the crop year. This week’s shipment pace was comfortably above that threshold, adding some cushion.

New-crop demand was notably stronger. 2026/27 upland sales jumped to 298,700 RB, led by Vietnam, Nicaragua, Turkey, Mexico and unknown destinations. All-cotton new-crop commitments reached 2.26 million bales, with the forward book still concentrated but improving.

The export outlook is firmer on both sales and shipments. We would lift the working full-year export view to around 12.0–12.2 million bales, with USDA’s 12.2 million achievable if weekly shipments hold near 295,000–310,000 bales. Downside risk now looks more limited, closer to 100,000–300,000 bales rather than a larger miss.

Moisture in Texas held roughly steady rather than improving further. Texas topsoil rated short or very short was 39%, while subsoil short or very short was 45%. Nationally, topsoil short or very short was 33%, and subsoil short or very short was 37%. Texas cotton planting advanced to 80%, still behind the five-year average of 85%, while Texas crop condition was 42% good/excellent and 15% poor/very poor. The moisture profile is better than it was earlier, but subsoil reserves remain tight enough to keep establishment and abandonment risk in play.

Drought coverage improved materially. Drought.gov/USDM now shows 41.3% of Texas in D1–D4 drought, with 17.7% in severe drought or worse. That is a clear improvement from the prior week’s 50.1% D1–D4 and 30.6% D2–D4 readings. Even so, the statewide improvement still needs to be treated carefully because cotton risk remains most sensitive to western producing areas, where rainfall distribution matters more than the statewide average.

Weather remains supportive in the near term but is less cleanly bearish than last week. CPC’s latest 6–10 day outlook keeps North, South and West Texas in the above-median precipitation category, with forecast confidence at 3/5. However, the 8–14 day outlook shifts Texas back to near-median precipitation, with confidence still low at 2/5. That should continue to help stands where rains verify, but the less-wet extended outlook limits the bearish read-through.

Near-term storm risk is also an offset. NHC was issuing advisories on Potential Tropical Cyclone One, with life-threatening flooding possible over portions of Texas and Louisiana. Gulf moisture could improve local soil moisture where rain falls, but flooding, fieldwork delays, localized storm damage and uneven rainfall distribution remain offsetting risks.

Coffee's front end has flipped from harvest pressure to a weather-and-delivery squeeze. July arabica settled 277.25 Tuesday, up 14.30 (5.44%), after basing at 242.70 on June 9 (intraday high 279.20). July robusta settled $3,669, up $62, just shy of its $3,675 one-month high. Certs keep bleeding: ICE arabica down to 396,957 bags, a 6.75-month low; robusta bounced to 3,991 lots off a two-year low of 3,631. With arabica FND on June 22 (robusta June 25), thin stocks make the delivery window a live squeeze risk.

Positioning explains the violence. To June 9, managed money cut 3,660 longs to 35,924 and built 5,403 shorts to 32,792, trimming the net long to just 3,132 contracts. Specs had leaned short into the lows, so the Brazil rain print hit a thin, short-heavy book and squeezed, rather than a clean fundamental repricing.

Brazil is the trigger and the cap. Reuters had June 11-13 rains soaking the southeast belt including Minas, wetting coffee drying in farmyards and halting fieldwork. One South Minas grower put berry drop at 10%+, agronomists flagged fungal and bacterial risk, and more rain is forecast into July. That supports nearby premium on quality and logistics, but doesn't break the crop-size story.

The crop story is still bearish. USDA FAS has Brazil 2026/27 at a record 71.9m bags (+14.1%): arabica 47.5m, robusta 24.4m, exports +29.6% to 49.07m. Conab is lower but still record at 66.7m (+18%); Safras heavier at 75.65m, harvest 23% done by June 2 vs 28% a year ago. Rain slows harvest and dents quality, but the record crop still caps rallies unless the damage broadens.

Vietnam keeps robusta leaning bearish medium-term. FAS pegs MY26/27 at 32.5m bags GBE (robusta 31.4m) vs a revised 31.7m for MY25/26; exports heavy at 28.95m after 28.5m in MY25/26, with H1 MY25/26 at 15.7m (+27.5%). Price shows it: H1 export prices off 9%, Central Highlands robusta down 16% to ~VND 102,800/kg. The offset is weather, with a 62% NOAA chance of El Niño in June-August adding warmer, drier risk to SE Asia.

Colombia is the arabica offset, but mostly for washed diffs, not the global balance. May output rebounded 29% to ~1.05m bags, yet Jan-May was still down 19% at 4.27m, exports down 22% at 4.15m, and the rolling 12-month down 14% near 12.6m. FAS sees a 2026/27 rebound to 13.4m. Supportive nearby, not enough to offset Brazil and Vietnam alone.

ICO's May report fits the transition: the composite averaged 256.05, down 3.8% on April. April green exports fell 1.9% y/y to 10.51m bags, with Colombian Milds down 14% and Brazilian Naturals down 14.8%. Two-sided: futures discount better second-half supply while visible nearby availability stays tight.

Coffee continues to trace out a long-term wave (C) down, with the potential to retrace much of the upside built over previous years. We currently have KC as within an impulsive decline forming part of the macro wave (C) lower. Recent weeks have produced a bounce of sorts, reclaiming above the 200WMA. For more on the tactical considerations, we zoom in to the daily chart.

Having reached our 254 target region, a rally of sorts has now developed. There is a good chance this is the wave (iv) we have awaited in prior commentary, which should play out over the coming couple of weeks and target the 280–300 area. Price remains within the downtrend channel pictured; a break above this channel would place us pretty firmly in wave (iv). Should KC then blow through the red resistance box at the 280 region, we could consider wave (v) as complete and would need to change tactics for a larger rally — though this is not yet our base case.

Arabica's fund cushion has nearly gone. CFTC futures-and-options data for June 9 had managed money in Coffee C net long just 3,132 contracts, down from roughly 12,200 a week earlier. Funds cut 3,660 longs and added 5,403 shorts, so the drop came from both long liquidation and fresh shorts, on open interest of 272,513.

Commercials offered more comfort. Producer, merchant, processor and user accounts were net short 6,884 contracts, sharply narrower than roughly 15,100 the prior week, as commercial longs jumped 9,269 (industry buying the dip) while shorts rose only 1,070. Origin hedging is present but no longer the dominant weekly driver.

The report is already stale: July Coffee C has since recovered to 277.25 c/lb on June 16, up 14.30 cents and back above 260 c/lb for the first time this month. That puts it near the old 280/285 c/lb repair zone, but with net length barely 3,100 contracts the cushion is thin. A sustained push through 280/285 is needed before this looks like rebuilt momentum rather than short-covering, with 300 c/lb the larger upside confirmation.

Robusta looks firmer, but confirmation should come from the tape, spreads and physical demand, not the stale fund slate. July robusta was quoted $3,669/ton on June 16, with spot July just above $3,600 and September above $3,500 for a second session, a clear step up from the early-June $3,462. But certified robusta has bounced off its May low, so the physical signal is no longer one-way tight: rallies still need nearby spreads and demand to validate, not just a friendlier setup versus arabica.