Cotton prices have fallen below 79 cents, signaling a fundamental shift in market sentiment. On June 4, the ICE cotton December contract settled at 78.49 cents per pound, down 2.02 cents or 2.51% in a single session. This is not just a technical breakdown but a reflection of the dual reversal in speculative capital and fundamental expectations.
Fund Exit: Net Long Positions Shrink
The direct driver of the decline is active liquidation by speculative funds. As of the week ending May 26, speculative net long positions in ICE cotton futures and options had dropped to 68,171 contracts, a decrease of 1,143 from the previous week. Market participants point out that a significant premium had accumulated when prices approached 89 cents in mid-May, much of which was speculative froth now being systematically squeezed out.
The logic behind fund behavior is straightforward: as macro risks rise and substitute prices fall, the balance between holding costs and potential returns breaks. Chicago trader Jon Marcus bluntly stated that the decline is entirely due to fund long liquidation. For textile mills, this means the pricing center of gravity in the futures market is shifting from financial capital back to industrial supply and demand.
Macro Headwinds: Crude Oil and Grains Double Down
Cotton is not alone in this selloff. On June 4, crude oil futures fell more than 3% after Israel and Lebanon reached a ceasefire agreement, reducing the risk of a broader conflict that could close the Strait of Hormuz. Lower oil prices make polyester—a direct substitute for cotton in textile raw materials—more cost-attractive for buyers, thereby weakening relative demand for cotton.
At the same time, U.S. corn and soybean futures fell to multi-month lows due to favorable weather in key growing regions. The weakness in grain markets further depressed sentiment across the agricultural complex, and cotton could not escape the drag.
Supply Side: U.S. Planting Progress Near Normal
The latest USDA crop progress report shows U.S. cotton planting at 66% as of the week, up from 53% the prior week and roughly in line with the five-year average of 67%. This means there is no substantive disruption to new-crop supply expectations, leaving little room for weather-driven speculation.
Export data shows a mixed picture: for the week ending May 28, current-crop U.S. upland cotton net sales reached 185,268 running bales, up 21% from the previous week and 62% above the four-week average. Sales to China accounted for 11,029 bales. However, new-crop sales were only 77,145 bales, indicating lingering uncertainty about forward demand. ICE deliverable stocks stood at 255,021 bales, up more than 11,000 bales from the previous day, adding physical pressure.
Industry Impact: Is a Procurement Window Opening?
From the mid-May peak near 89 cents to the current 78.5 cents, cotton has fallen over 12%. For textile mills that have been on the sidelines, this decline is approaching the trigger range for restocking. The Cotlook A Index remains steady at 87.5 cents, widening the gap between futures and physical prices and making basis-linked procurement more attractive.
However, caution is warranted: fund liquidation may not be over, and if crude oil weakens further or the U.S. dollar strengthens, prices could test support at 75 cents. Buyers should avoid a single large position but could consider phased accumulation to lock in mid-to-low costs.