CME Cotton #2 May '25 (KGK25)

Description

Cotton is a natural vegetable fiber that comes from small trees and shrubs of a genus belonging to the mallow family, one of which is the common American Upland cotton plant. Cotton has been used in India for at least the last 5,000 years and probably much longer, and was also used by the ancient Chinese, Egyptians, and North and South Americans. Cotton was one of the earliest crops grown by European settlers in the US.

Cotton requires a long growing season, plenty of sunshine and water during the growing season, and then dry weather for harvesting. In the United States, the Cotton Belt stretches from northern Florida to North Carolina and westward to California. In the US, planting time varies from the beginning of February in Southern Texas to the beginning of June in the northern sections of the Cotton Belt. The plant's flower bud blossoms and develops into an oval boll that splits open at maturity. At maturity, cotton is most vulnerable to damage from wind and rain. Approximately 95% of the cotton in the US is now mechanically harvested with spindle-type pickers or strippers, then sent to cotton gins for processing. There, it is dried, cleaned, separated, and packed into bales.

Cotton is used in a wide range of products, from clothing to home furnishings to medical products. The staple, grade, and character of each bale determine the value of cotton. Staple refers to short, medium, long, or extra-long fiber length, with medium staple accounting for about 70% of all US cotton. Grade refers to the color, brightness, and amount of foreign matter and is established by the US Department of Agriculture. Character refers to the fiber's diameter, strength, body, maturity (ratio of mature to immature fibers), uniformity, and smoothness. Cotton is the fifth-largest cash crop in the US and one of the nation's principal agricultural exports. The weight of cotton is typically measured in terms of a "bale," which equals 480 pounds.

Cotton futures and options are traded at the ICE Futures US exchange. Cotton futures are also traded on the B3 exchange, the Multi-Commodity Exchange of India, and the Zhengzhou Commodity Exchange. Cotton yarn futures are traded on the Zhengzhou Commodity Exchange. The ICE Futures US exchange's futures contract calls for the delivery of 50,000 pounds net weight (approximately 100 bales) of No. 2 cotton with a quality rating of Strict Low Middling and a staple length of 1-and-2/32 inch. Delivery points include Texas (Galveston and Houston), New Orleans, Memphis, and Greenville/Spartanburg in South Carolina.

Prices - ICE cotton futures (Barchart.com symbol CT) drifted lower into Q2 of 2025 and posted a 5-1/2 year low in April of 60.80 cents a pound. Abundant global cotton supplies weighed on prices as the USDA in the January WADE report raised its 2024/25 global cotton production estimate to a 5-year high of 119.45 million bales and hiked its 2024/25 global cotton ending stocks estimate to a 5-year high of 77.91 million bales. Also, US tariffs on imports from China prompted China to retaliate with tariffs on US goods and cut back its purchases of US cotton, as Jan-Feb China imports of US cotton sank nearly -80% yr/yr and China cut its 2024/25 cotton import forecast to a 6-year low of 7 MMT. Cotton prices then surged to a 1-year high of 73.50 cents a pound in May as talks between the US and China signaled potential progress on easing the trade war. Also, Cotlook forecast a 2025/26 global cotton surplus of 356,000 MT in late April, sharply down from a projected 2024/25 surplus of 1.32 MMT. Cotton prices also found support after the USDA in the May WASDE report projected 2025/26 global cotton production of 117.81 million bales, down -2.7% yr/yr. Cotton prices then traded sideways into Q3 before turning lower in Q4. The USDA in the November WASDE report raised its 2025/26 global cotton production estimate to a 6-year high of 120.08 million bales and hiked its 2025/26 global cotton ending stocks estimate to a 5-year high of 75.93 million bales. Cotton prices then recovered slightly into year-end as US-China trade tensions eased, prompting China's agriculture ministry to raise its 2025/25 cotton consumption forecast. Also, the USDA in its December WASDE report cut its 2025/26 global cotton production forecast. Cotton prices finished 2025 down -6.0% yr/yr at 64.27 cents a pound.

Supply - World cotton production in 2025/26 increased by +0.8% yr/yr to 119.433 million bales (480 pounds per bale), below the 2011/12 record high of 127.244 million bales. The world's largest cotton producers in 2025/26 were China (28.9% of world production), India (19.7%), Brazil (15.7%), the US (11.7%), and Pakistan (4.2%). World ending stocks in 2025/26 rose by +1.0% yr/yr to 74.482 million bales, below the 2014/15 record high of 103.634.

The US cotton crop in 2025/26 fell by -3.4% yr/yr to 13.918 million bales, below the 2005/06 record high of 23.890 million bales. US farmers harvested 7.804 million acres of cotton in 2025/26, remaining unchanged yr/yr. The US cotton yield in 2025/26 fell by -3.4% yr/yr to 856 pounds per acre, below the 2022/23 record high of 953 pounds per acre. The leading US cotton-producing states in 2025 were Texas (with 36.2% of US production), Georgia (12.9%), Arkansas (10.8%), Missouri (6.2%), Mississippi (5.7%), North Carolina (4.8%), and Alabama (4.3%).

Demand - World cotton consumption in 2025/26 remained unchanged yr/yr to 118.915 million bales. The largest consumers of cotton in 2025/26 are China (32.8% of the world total), India (21.0%), and Pakistan (9.2%). The US consumption of cotton by mills in 2025/26 fell by -5.9% yr/yr to 1.600 million bales.

Trade - World exports of cotton in 2025/26 rose by +3.3% yr/yr to 43.772 million bales, below the record high of 48.463 million bales posted in 2020/21. The major world cotton importers for 2025/26 are Vietnam (18.5% of total world imports), Bangladesh (18.3%), Pakistan (13.5%), China (12.3%), and Türkiye (10.5%).

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