• To understand what could happen to the cotton market during 2024, we need to take it apart thread by thread. 
• Most of the elements making up the market could be interpreted as bearish as we make our way to spring planting season. 
• However, the most bullish factor continues to be seasonality, with the December futures contract showing a tendency for a high weekly close the first week of May. 

A friend from Tennessee sent me a message recently reading, “As we approach the beginning of spring planting in the mid-South, I wonder if you would post a deep dive into 2024 cotton futures.” My friend went on to say only a few analysts take the time to “delve into the cotton market” (I like how that reads), and he is correct. Nearly all the conversation in the industry is about corn and soybeans. Why? A couple reasons: First, those are the two largest production ag markets in the US. Second, it’s easy. Folks don’t have to work too hard to make bullish or bearish arguments for corn and soybeans. Other markets like cotton (and rice, oats, most of the Softs sector) are more difficult. With that in mind, let’s take cotton apart thread by thread and see what 2024 looks like. 

As always, let’s start with trend, or price direction over time. Since my friend mentioned spring planting, I’m going to focus on the new-crop December futures contract (though noncommercial traders will continue to position themselves in old-crop May and July futures). If I had to choose one word other than up, down, or sideways to describe Dec24 (CTZ24) cotton’s weekly chart it would be “indecisive”. I could make the argument the intermediate-term trend turned down the week of February 26 as it completed a bearish spike reversal, but this pattern has not generated much follow-through selling interest. The key to price direction could be the next move: If Dec24 takes out its recent high of 85.25 (cents per pound) or recent low of 81.75. 

Seasonal analysis tells us the breakout should be to the upside. The Dec24 futures contract shows a tendency to rally from the last weekly close of March (this week) through the first weekly close of May. Based on my seasonal study of weekly closes:  

• The 5-year index shows a gain of 6%.
• The 10-year index shows a gain of 5%.

Theoretically, if Dec24 hold near 84.00, closing last Friday at 83.95, the range for a projected high weekly close would be: 

• 10-year approximately 88.20.
• 5-year approximately 89.00.

Is the new-crop market fundamentally bullish, enough so to support this type of spring rally? The Dec24-March25 futures spread has seen increased selling over the last number of weeks, dropping it from an inverse of 0.03 cent (close the week of February 12) to a carry of 0.95 cent this past week. While I don’t have the same cost of carry metric to measure cotton’s spreads as I do grains (one of the factors that makes cotton more difficult), we can see the commercial side has been putting pressure on new-crop cotton in response to noncommercial traders recently increasing their long futures positions at a rapid rate. 

If we look beyond the Dec24-Mar25 futures spread and study the new-crop forward curve (Dec contract through July contract) as a whole, we see the latest version of the curve (blue line on chart) showing a stronger carry compared to the past 3 months. This tells us the commercial side has been growing more comfortable with 2024-2025 supply and demand, meaning: 

• 2023-2024 ending stocks becoming 2024-2025 beginning stocks
• 2024 planted area is likely to increase (indicated by the stronger carry in the Dec-March futures spread)
• 2024-2025 supplies are expected to increase in relation to demand (forward curve as a whole)

The bottom line, as of now, is fundamentally the new-crop cotton market doesn’t look to be supporting the idea of a strong seasonal rally. This doesn’t mean it won’t happen, after all spring weather can be chaotic across key cotton growing areas, but if the seasonal rally does materialize I would expect to see increased commercial pressure along the way. 

As I mentioned, the noncommercial side will likely play a key role in cotton again during 2024. The latest CFTC Commitments of Traders report (legacy, futures only) showed this group still holding long futures of 126,335 contracts, part of a net-long futures position reported at 91,632 contracts as of Tuesday, March 19. All-time records for these positions are 145,436 contracts (week of January 22, 2018) and 126,667 contracts (week of March 6, 2017) respectively. Recent highs for the positions were 131,510 contracts (week of March 5) and 102,305 contracts (week of February 27). In a nutshell, the more likely next move by Watson (my name for the algorithm investment industry in general) would be long liquidation given long-term fundamentals are not overly bullish. 

Last, but certainly not least, the Dec24 contract was priced in the upper 25% of its distribution range (based on weekly closes only) at last Friday's close. This could be considered a bearish factor, particularly in conjunction with the carry in the market's forward curve, as it is comfortably above the upper 33% mark of 79.50. Not only could this increase commercial pressure tied to producer forward selling, it could also spark increased noncommercial long liquidation mentioned above. 

Given all this, can we expect cotton to follow the path to historic highs during 2024 that so many other Softs markets have tread the last few years? I recently talked about cocoa, but a look at long-term continuous charts shows us the same for orange juice, coffee, and sugar, just to name a few. As of this writing, I don’t see it looming for cotton based on the carry in the market’s forward curve. The common thread of the other markets was inverted forward curves. Could 2024 cotton fundamentals change? Certainly, and if so, it will likely be a function of weather. As I’ve said more times than I can remember, production ag markets, including cotton, are weather derivatives at heart.