U.S. cotton futures showed a tug-of-war between bulls and bears on Wednesday (June 10) after a sustained decline. The July contract eventually settled 0.16 cent lower at 71.10 cents per pound, hitting an intraday low of 71.01 cents, the weakest since April 1. Notably, the more active December contract closed unchanged at 75.30 cents, suggesting some underlying support at current levels for the far-month contract.
Oversold Signals and External Support
Technically, the market has entered deeply oversold territory, triggering some short-covering activity, according to a Georgia-based cotton broker. Meanwhile, supportive external markets limited the downside. Chicago wheat and corn futures extended their rebound from multi-month lows, with attention shifting to the U.S. government's crop forecasts, providing a sentiment boost to the agricultural sector.
Rising crude oil prices were another key supportive factor. Oil futures settled nearly $2 higher as geopolitical tensions between the U.S. and Iran escalated. For the textile industry, higher oil prices increase the production cost of synthetic fibers like polyester, a substitute for cotton. This cost pass-through logic temporarily enhances cotton's relative price competitiveness, providing a floor for cotton prices.
Macro Data and Policy Expectations
On the macro front, the U.S. Labor Department reported that the Consumer Price Index (CPI) rose 4.2% year-over-year in May, the largest increase since April 2023, matching market expectations. The core inflation data did not significantly increase the likelihood of a Fed rate hike this year, causing the U.S. dollar index to edge lower. A weaker dollar is generally supportive for dollar-denominated commodities, including cotton.
However, the weakness in equity markets sent a different signal. Major U.S. stock indices all fell more than 1%, with semiconductor stocks extending their losses. The renewed U.S.-Iran tensions added to investor uncertainty, dampening risk appetite and curbing fund flows into risk assets like commodities.
Awaiting Key Reports, Market in Wait-and-See Mode
The market's primary focus is on two key reports due this week. The U.S. Department of Agriculture (USDA) will release its monthly World Agricultural Supply and Demand Estimates (WASDE) report on Friday, providing updated forecasts for global and U.S. cotton production, consumption, and ending stocks. This report is a critical driver for medium-term price trends. Additionally, the USDA's weekly export sales report is due on Thursday evening.
Industry insiders commented that cotton has seen a sufficient decline and has technical potential for a rebound, but the view that the "seasonal window for high prices has passed" caps the bullish outlook. This implies that unless the WASDE report delivers a significant surprise on the bullish side, prices are more likely to consolidate at low levels in the short term rather than stage a trend reversal.
Spot Market Under Pressure
The weakness in futures has transmitted to the spot market. On June 10, the Cotlook A Index, a benchmark for physical cotton, fell 225 points to 83.65 cents per pound. The decline in spot prices means lower import costs for domestic textile mills. This could represent a window for opportunistic restocking, provided downstream order demand recovers accordingly.