Long CT / Short KC

Cotton has collapsed over 50% from its early 2022 peak… but is the downside momentum running out of steam?

I'm starting to see massive cracks in the bearish thesis, for me a reversal in cotton futures is building.

Here’s why cotton has been underperforming:

China has been largely absent from the market, and as the world's largest importer, this lack of demand has weighed heavily on prices.
Global supply has marginally loosened, adding to bearish pressure.
The market focuses too much on U.S. data, ignoring Brazil’s growing export share. But now, the demand shift toward Brazil appears to be reversing back to the U.S.
U.S. export sales are on track, but shipments are lagging, leading to concerns over weak physical demand.
CTAs and hedge funds are aggressively short, reinforcing downside momentum with record-high managed money short positions.

But signs are emerging that cotton may have bottomed:

✅ We’re right at the Commodity Credit Corporation (CCC) loan level, where U.S. farmers’ storage costs effectively go to zero.
✅ India’s Competition Commission (CCI) has bought ~7M bales and is now importing from the U.S. and Brazil—an unusual move that suggests 12M bales are effectively off the market.
✅ U.S. cotton is now cheaper than Brazilian cotton, signaling a shift in global demand back to the U.S.
✅ China’s forward purchases look weak, but physical imports align with the USDA’s 8M bale forecast—suggesting they are shifting to a "just-in-time" buying approach and will soon have to step in more aggressively.
✅ The spec short position is near historical highs, meaning any shift in sentiment could trigger a violent short-covering rally.

The Pair Trade: Long Cotton, Short Coffee ☕

While we see a potential bottom forming in cotton, coffee looks ripe for a pullback:

❌ CTAs are too long, leaving little room for fresh buying.
❌ Technicals are turning—volatility is rising at the top, signaling distribution.
❌ This price is killing demand, as we’re already seeing cracks in consumer behavior.

Long Cotton, Short Coffee

My trade, Buy CTV25 CS 75/85 ref 69.75 at 2$ vs Buy KCU25 PS 280/260 ref 360 at 3.5$

Mika

 

Does that mean people will start to wear cotton rather than polyester?

 

Today not the best day for my pair trade ! LOL

 

don't the pair trade. if you long cotton, fine. if you short coffee, fine. they are not related.

btw, china cotton is everywhere.

 

Not in clothing stores. mainly sweaty polyester. polyester material does not breathe.

 

what's the relationship between cotton and coffee? do you get margin relief?

 

The guy didn't learn when he blew out in CT diagonals and now he's spreading CT/KC. I wouldn't touch short KC with a cattle prod. Trade limited risk reversals. It's -edge as there is upside skew but at least you won't go debit.

 

Still trading this stuff?

How did it go with that spread?

 

I am long Cotton and keep shorting coffee/ hedging pays off when wrong on the futures.

I don't use funnymentals. I use 9 year cycles.

 

It was tough, but lesson learned not to be naked short ! I'm thanksful for my BTC wallet and mining farm. Had to sell some of them to stay alive but still in the game and still intending to make a killing !! I stand by my idea of LONG CT SHORT KC !!!