Cotton Rally Driven by Speculative Reversal

The December 2026 cotton contract rose from 75.17 cents per pound to 93.74 cents between June and August. This represents a gain of 18.57 cents, or nearly 25 percent. The rally attracted significant attention from market participants during the spring and summer months.

Noncommercial traders drove this price increase. Commercial participants used the rally to sell their positions. The divergence between these two groups defined the market structure during this period.

Speculators Reversed Record Short Positions

Funds held a record net-short position of 65,632 contracts on October 14, 2025. This position grew to a record 155,316 short contracts by February 17. These levels set the stage for a substantial market move.

During the spring quarter, funds covered these shorts. The net position shifted to a net-long of 102,389 contracts on May 12. This switch involved 168,000 contracts and drove prices up by 20.0 cents.

Commercial Traders Sold Into Rally

The December-March futures spread remained sideways to slightly up through mid-May. The high daily close for this spread was 0.5 cents of carry on May 12. After this date, the spread weakened significantly as commercial interests sold.

By the end of August, the carry had strengthened to 2.00 cents. On September 11, the carry firmed to 2.5 cents. This indicates that the selling pressure from the commercial side had subsided.

Market Structure Diverged From Fundamentals

The price move was not driven by a sudden shift in supply and demand. It was driven by the technical position of noncommercial traders. Commercial traders acted as the counterparty, locking in profits as prices rose.

According to GN markets/commodities (en-US), the seasonal pattern for the December contract held during this period. The market now faces uncertainty regarding whether these patterns will continue to hold.