Cotton prices are undergoing a sharp decline driven by external markets. On June 9, ICE cotton futures for July delivery fell 3.08% to 71.26 cents per pound, hitting the lowest since March 27 after touching an intraday low of 71.08 cents. The December contract dropped 2.98% to 75.30 cents. This is not an independent deterioration of cotton fundamentals but a result of linked movements in energy and grain markets.
Triple Resonance of Energy and Grains
Crude oil prices fell about 3% that day, hitting a seven-week low. News that Iran and Israel had suspended attacks at the request of US President directly suppressed the risk premium on oil. Meanwhile, CBOT soybean futures fell due to favorable weather in the US Midwest, and new-corn contracts also edged lower. An analyst from Price Futures Group noted that cotton is taking direction from grain markets, and the collapse in crude oil prices further amplified selling sentiment.
This cross-commodity linkage means cotton prices have moved beyond simple supply-demand pricing models. With correlations between cotton, crude oil, and soybeans exceeding 0.7 in 2025, textile supply chain decisions can no longer rely solely on USDA reports but must also track OPEC output and US Corn Belt weather forecasts.
Brazil's Export Surge: A Structural Supply Variable
Data from Brazil's Secretariat of Foreign Trade shows that Brazil's average daily cotton exports in the first week of June reached 16,041 tons, a 142% surge from the 6,640-ton daily average for the entire month of June last year. Behind this figure lies Brazil's record-high cotton production for the 2024/25 season. Brazil has surpassed the US to become the world's largest cotton exporter, and its export pace increasingly pressures ICE futures.
For Chinese cotton textile enterprises, the massive arrival of Brazilian cotton will directly impact domestic import cotton prices. Currently, Brazilian cotton at Qingdao port is priced 1-2 cents per pound lower than US cotton. This benefits coastal weaving mills using imported cotton but may intensify price divergence for Xinjiang cotton through substitution effects.
US Quality Improvement: Weather Premium Fading
USDA's weekly crop progress report shows that as of June 7, US cotton quality rated good-to-excellent stood at 53%, up from 49% a year ago. Planting progress reached 77%, slightly above last year's 75%. These figures indicate that drought concerns in Texas are easing, and the weather premium previously priced into the market is being squeezed out.
Notably, ICE deliverable stocks fell from 261,648 bales to 257,511 bales, suggesting no panic selling in the spot market. This may imply the current decline is more financial than industrial in nature.
Market Focus Shifts to Supply-Demand Report
Traders are eyeing Thursday's USDA monthly supply-demand report. The market generally expects US 2025/26 cotton production to be revised up due to increased acreage, but the biggest variable remains the pace of Chinese purchases on the demand side. If the report shows continued accumulation of global ending stocks, cotton prices may test the psychological support of 70 cents per pound.
For the Chinese market, falling import cotton prices are compressing the domestic-import spread. Currently, the landed cost of imported cotton under 1% tariff is about 12,500 yuan per ton, about 1,000 yuan lower than domestic Grade 3128B cotton. This spread structure helps textile mills reduce raw material costs but also increases policy pressure on reserve cotton auctions.