The cotton market is at a delicate crossroads. On June 2, the ICE December contract settled at 80.54 cents per pound, up 0.38 cents or 0.47%. The gains were driven by two forces: a weaker US dollar and India's decision to eliminate cotton import tariffs. But a closer look reveals a more nuanced picture.
India's Zero Tariff: Short-Term Boost, Long-Term Trade Shift
India's government announced on Saturday the removal of cotton import tariffs for five months. The policy aims to secure raw material supply for the country's textile exporters, as overseas demand for cotton yarn remains strong. Industry officials indicated that India may source from Australia, Brazil, the US, and Africa, all of which have surplus supplies.
On the surface, zero tariffs reduce import costs for Indian buyers and support international cotton prices. However, Keith Brown, a cotton broker from Georgia, noted that the dollar-rupee exchange rate is still unfavorable, meaning the actual cost of US cotton for Indian buyers remains high. Indian buyers are likely to prioritize Brazilian or Australian cotton over US cotton. For US farmers, the incremental demand from this policy may be partially offset by currency factors.
Dollar Weakness: Pricing Advantage vs. Procurement Cost
The US dollar index traded in a narrow range on June 2, showing overall weakness. A weaker dollar theoretically makes dollar-denominated cotton cheaper for importers using other currencies. However, the reality is more complex: the Indian rupee has not strengthened in tandem with the dollar's decline, leaving US cotton expensive for Indian buyers.
This currency mismatch is reshaping global trade flows. Brazilian and Australian cotton are becoming more competitive, while US cotton's market share in India may suffer. For major textile exporters like China and Vietnam, a weaker dollar directly lowers import costs, encouraging inventory replenishment.
US Production: Drought Persists, Planting Slightly Ahead
Weather remains a key variable for cotton prices. USDA data shows that as of May 31, US cotton planting was 66% complete, above last year's 64% and near the five-year average of 67%. Planting progress is slightly faster, but drought in West Texas continues. Vaisala Weather meteorologists noted that while the Southeast may see some rain, West Texas will remain dry.
Drought threatens crop quality and final yields. The market has not fully priced in this risk yet, but if dry conditions persist into July, it could irreversibly impact boll development. Meanwhile, global grain markets are falling due to favorable weather and ample supply, which dampens cotton's upside potential.
Demand: Export Data Improves, but Sustainability Questioned
USDA's weekly export sales report showed net sales of 153,600 bales of upland cotton for the 2025/26 season, up 17% from the previous week and 32% above the four-week average. This suggests that lower prices attracted some buyers. However, single-week data is volatile, and global downstream textile demand has not shown clear signs of recovery.
ICE deliverable stocks rose to 242,991 bales, up 4,998 bales from the previous day. The continued buildup of inventories indicates ample spot supply, which will pressure nearby contracts.