In my Q4 Barchart recap on the soft commodities sector that looked forward to the price action in 2025, I wrote, “Cotton has been a laggard since the 2022 high. Cotton tends to rally in spring as the uncertainty of the annual crop peaks. Highs tend to occur from March through July. At below 70 cents per pound, cotton could be the soft commodity that offers the most compelling value with a limited downside for 2025.”
March cotton futures were at 67.29 cents per pound on January 13 and have edged lower in mid-February. However, cotton could be a bullish sleeper over the coming months as the price offers significant value at the current level.
A bearish trend heading for the long-term critical support level
After reaching a pandemic-inspired 48.35 cents per pound low in April 2020, cotton prices exploded higher.
The monthly chart highlights cotton futures’ ascent to the May 2022 $1.5595 peak, the highest price since 2011, when the nearby futures reached a record $2.1970 per pound. Cotton futures ran out of upside steam in May 2022, and have made lower highs and lower lows, reaching the most recent low in January 2025 at 66.01 cents per pound. Technical support is at the 2020 48.35 low, with resistance at $1.0380, the February 2024 high.
The 2025 crop year is approaching- Cotton futures tend to rally during spring and summer
Cotton tends to reach seasonal highs during spring and summer.
The thirty-year continuous futures chart shows that highs in 1998, 2008, 2011, 2014, 2018, 2021, 2022, and 2024 occurred from February through July. The uncertainty of each crop year tends to boost cotton prices. The two most recent highs occurred in March 2011 and May 2022.
The latest January USDA World Agricultural Supply and Demand Estimates Report told the cotton market:
As the report details, inventory levels support the bearish price action in the cotton futures market. The USDA reduced its 2024/2025 upland farm price to 65 cents per pound, just below the current price for the March ICE futures contract. However, the forecast depends on favorable global weather conditions during the 2025 crop year, which could be a leap of faith.
The bullish case for cotton- A limited downside
Cotton’s bullish case includes:
- The current low price level assumes another bumper cotton crop in 2025, which depends on cooperation from weather conditions.
- Cotton is a volatile commodity that has moved to a level that limits the downside price potential. Given the price action over the past years, risk-reward dynamics favor higher prices.
- Cotton is a soft commodity traded in the sector with sugar, coffee, cocoa, and frozen concentrated orange juice. Over the recent weeks and months, coffee, cocoa, and FCOJ futures have soared to record highs on weather and other issues impacting supplies.
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Tariffs can distort commodity prices. The Trump administration has pledged to employ tariffs to improve the U.S. trade balance. Tariffs can cause significant volatility in raw materials, and cotton futures are no exception.
Source: Statista
The chart shows that China, India, the U.S., and Brazil are leading cotton-producing countries. Adverse weather in Brazil caused the rallies in coffee and FCOJ and could impact Brazilian cotton output. Moreover, crops in China, India, and the U.S. depend on favorable growing and weather conditions during the 2025 crop year, which is not guaranteed.
Levels to watch in the cotton futures arena
Cotton futures reached the lowest level since 2020 in January 2025.
The weekly continuous ICE cotton futures chart shows the move to 66.01 cents, the lowest price since October 2020. The first level of technical support is at the 2020 48.35 cents per pound low. Technical resistance is closer to the September 2024 74.55 high. Cotton’s low level support at least one spring or summer recovery rally if weather concerns arise.
No ETF or ETN products- Futures are the only option for participation
The iPath Series B Cotton Subindex TR ETN (BAL) ceased trading in June 2023, leaving the only route for participation in the cotton market the ICE futures and futures options.
Each ICE cotton futures contract contains 50,000 pounds of the fluffy fiber. At 66 cents per pound, the contract value is $33,000. The original and maintenance margin levels are $2,062 and $1,875 per contract, respectively. A market participant can control $33,000 worth of cotton for a 6.25% down payment, paying a variation margin if the equity falls below the $1,875 per contract level.
Risk-reward favors cotton going into the 2025 spring planting season. While the bearish trend could continue to make lower lows, the current price limits the downside risk, while the upside potential could be explosive if there are any weather surprises. The bottom line is that cotton is inexpensive, below 70 cents per pound.
