Cotton Market Correction: Trading the Global Stocks IncreaseThe global cotton market is signaling a potential correction in April 2025, as outlined in the USDA’s World Agricultural Supply and Demand Estimates (WASDE) report released on April 10. The report projects a 520,000-bale increase in global ending stocks to 78.86 million bales, driven by lower consumption in key markets like China and Indonesia. In the US, cotton exports are down 100,000 bales to 10.9 million, with the season-average price holding steady at 63 cents per pound. These dynamics suggest bearish pressure on cotton futures, offering traders a chance to capitalize on short-term price movements. This article analyzes the cotton market’s current signals, updated with the latest price action, and provides actionable trading strategies to navigate this correction.
Cotton Market Dynamics: Rising Stocks, Falling Demand
The WASDE report highlights a significant shift in the global cotton market for the 2024/25 season. World ending stocks are raised by 520,000 bales to 78.86 million 480-lb. bales, primarily due to reduced consumption in China and Indonesia, where textile mill use is down 520,000 bales to 116.02 million bales. This decline in demand is partially offset by an increase in Turkey (up 100,000 bales), but overall, global trade is down, with exports reduced by 380,000 bales to 42.33 million bales. Key exporters like Australia, Brazil, the US, and Cote d’Ivoire see lower shipments, with the US specifically reporting a 100,000-bale drop in exports to 10.9 million bales, reflecting weaker global demand.
In the US, the cotton balance sheet shows ending stocks rising to 5.0 million bales (up 100,000 bales), as the export reduction directly impacts inventory levels. Despite this supply buildup, the season-average upland farm price remains unchanged at 63 cents per pound, indicating a market that has yet to fully price in the increased stocks. Production remains steady at 14.41 million bales, but the combination of higher stocks and lower exports introduces bearish pressure on prices, setting the stage for a potential correction in cotton futures.
Global Context: Supply and Trade Adjustments
Globally, the cotton market is also adjusting to supply-side changes. Production is down 69,000 bales to 120.89 million bales, with reductions in Argentina (down 50,000 bales) and Cote d’Ivoire (down 30,000 bales) more than offsetting an increase in China (up 20,000 bales). Imports are lower, with China and Indonesia reducing purchases by a combined 300,000 bales, while Turkey’s imports rise by 100,000 bales. The increase in global ending stocks to 78.86 million bales, with gains in China, Australia, Brazil, Egypt, and the US, further reinforces the bearish outlook, as supply outpaces demand in key markets.
This global stock buildup, combined with the US export decline to 10.9 million bales, suggests that cotton prices may face downward pressure in the near term. However, the steady US price at 63 cents per pound provides a potential support level, and any easing of trade tensions—such as the US-China trade war impacting broader commodity markets—could spark a reversal if demand recovers.
Trading Signals and Strategies
The cotton market’s current dynamics, with global ending stocks rising to 78.86 million bales and US exports falling to 10.9 million bales, continue to signal bearish pressure, but recent price action provides fresh insights for futures traders. As of April 23, 2025, Intercontinental Exchange Cotton Futures ( ICEUS:CT1! ) are trading at 66.86 cents per pound on a 30-minute chart, having recently peaked at 67.10 cents and showing a sharp decline from that level. The WASDE’s season-average price of 63 cents per pound remains a key support level, while technical indicators like the MACD, which shows a recent bearish crossover with the MACD line at 0.11 and the signal line at 0.19, reinforce the downward momentum.
A bearish strategy remains the primary setup given the market’s fundamentals and recent price action. The 30-minute chart indicates that CT futures have tested resistance near 67.10 cents per pound, but the bearish MACD crossover and a decline to 66.86 cents suggest that momentum is shifting downward. A break below the recent support of 66 cents—visible on the chart as a level where prices briefly consolidated—could signal a move to 64 cents, offering a 4-5% downside in the short term.
For a reversal play, traders can monitor for a potential bullish setup if trade tensions ease, boosting demand in China and Indonesia, where consumption is down 520,000 bales. If CT futures hold above 66 cents and reclaim the recent high of 67.10 cents with strong volume and a MACD crossover above the signal line, prices could target the next resistance at 68 cents, a 2-3% gain. This setup would require a shift in momentum, potentially driven by export demand recovery or supply disruptions in key producers like Brazil or Australia.
A range-bound strategy offers a more conservative approach, as the steady WASDE price of 63 cents per pound and recent price action suggest CT futures may oscillate between 64 and 67 cents in the near term. Traders can buy near 64.5 cents with a stop-loss below 64 cents and sell near 66.5 cents with a take-profit at 67 cents, capitalizing on short-term fluctuations while monitoring the WASDE’s reliability data, which shows a 90% confidence interval of ±7.1% for world ending stocks forecasts, indicating potential volatility if future reports adjust stock estimates significantly.
Risks to Watch
Trading cotton futures involves risks, particularly given the supply-driven bearish outlook. The global stock increase to 78.86 million bales could lead to further price weakness if demand in China and Indonesia doesn’t recover, especially with US exports down to 10.9 million bales. The WASDE’s historical data indicates a 4.2% root mean square error for world cotton export forecasts, with differences ranging up to 4.2 million bales, suggesting potential volatility in future reports. Additionally, an unexpected easing of the US-China trade war could boost demand, reversing the bearish trend, while weather disruptions in key producers like Brazil or Australia could tighten supply and support prices.
Summing it all up,
The cotton market in April, as detailed in the WASDE report and updated with recent price action, signals an ongoing correction with global ending stocks rising to 78.86 million bales and US exports falling to 10.9 million bales. With CT futures at 66.86 cents per pound, a bearish setup targets a move to 64 cents for a 4-5% downside, though a reversal to 68 cents or a range-bound trade between 64 and 67 cents offers alternative strategies. By using technical indicators like MACD and monitoring for RSI shifts, traders can navigate this market’s volatility and capitalize on short-term price movements, while staying alert for shifts in global demand and supply dynamics in the weeks, lying ahead.
