U.S. Cotton Export Data Exceeds Expectations, but Global Supply-Demand Tensions Remain

U.S. cotton futures extended gains on June 11, with the ICE July contract settling at 72.49 cents per pound, up 1.95%, and the actively traded December contract rising 1.41% to 76.36 cents. The rally was driven by the USDA's June supply-demand report, which raised U.S. export estimates by 200,000 bales to 12.2 million bales and lowered global ending stocks while increasing consumption. However, a closer look reveals structural contradictions beneath the surface.

Export Structure: China's Absence in 'Constructive' Data

The USDA's weekly export sales report showed net sales of 207,032 bales for the current season, up 12% week-over-week and 60% above the four-week average. Yet net sales to China were negative at -5,494 bales, indicating reduced positions. While StoneX broker Valentin Olah called the data 'constructive', the reality of China's reduced purchasing casts a shadow. For merchants reliant on Chinese orders, this signals unstable demand.

Regional Reactions: Brazil's Output Cut and Falling ICE Stocks

Conab lowered Brazil's 2025/26 cotton output estimate to 3.9784 million tons, down 2.5% year-on-year. Meanwhile, ICE deliverable stocks fell to 192,789 bales from 231,683 bales the prior day. The rapid drawdown, combined with higher U.S. export forecasts, provides technical support, but analysts view the July contract's rebound as short-covering rather than a trend reversal.

Price Outlook: Oil and Dollar Duel

Crude oil prices fell on June 11 after Trump canceled plans to strike Iran, easing geopolitical tensions. A weaker dollar offset some of the negative impact. At around 76 cents, the December contract sits below last year's levels and most farmers' breakeven points. The Cotlook A Index remained flat at 83.65 cents. For mills, raw material costs are manageable in the short term, but prolonged weak Chinese buying could rebuild U.S. inventories and pressure prices lower.

Practical Recommendations

For Buyers - Current prices are near three-month lows; consider locking in partial December contracts in batches. - Monitor China's import quota releases; a concentrated release in H2 could lift international prices. - Diversify supply sources by increasing inquiries for Australian and West African cotton.

For Foreign Trade Firms - Shift export focus toward Southeast Asian and South Asian markets as U.S. cotton reduces reliance on China. - Use ICE futures for hedging to lock in processing margins. - Track USDA monthly consumption adjustments; two consecutive declines would signal demand contraction.

For Mill Operators - Maintain flexible inventory levels to avoid overstocking amid price volatility. - Negotiate shorter-term contracts with suppliers to adapt to rapid market changes.