US Cotton Futures Hit Two-Month Low, External Markets and Supply-Demand Dynamics Become Key Variables

On June 10, ICE cotton futures fell to their lowest level since early April, with the July contract settling at 71.10 cents per pound, hitting an intraday low of 71.01 cents. However, losses were limited due to rising oil and grain markets and a weaker dollar.

External Markets and Short-Covering Provide Support

Chicago wheat and corn futures rebounded from multi-month lows, drawing attention to the USDA's upcoming crop forecast. Meanwhile, crude oil rose nearly $2 on escalating US-Iran tensions, making synthetic fiber alternatives more expensive and indirectly supporting cotton prices.

The dollar index edged lower after US CPI data for May showed a 4.2% year-on-year increase, in line with economists' expectations, reducing fears of imminent Fed rate hikes. A weaker dollar typically benefits dollar-denominated commodities like cotton.

Keith Brown, a cotton broker from Georgia, noted short-covering in the market, saying cotton is severely oversold and external markets are providing some help. However, he added that cotton has passed its seasonal price peak, limiting the potential for a significant rebound.

Supply-Demand Report and Export Data in Focus

Market participants are awaiting the USDA's World Agricultural Supply and Demand Estimates report due Friday and the weekly export sales report due Thursday. These data will directly impact the market's assessment of global cotton supply and demand.

Brown expects the reports to have limited impact, suggesting that without fresh fundamental drivers, cotton prices are likely to remain range-bound at low levels.

Spot Market Weakens

In the spot market, the Cotlook A index fell 225 points to 83.65 cents per pound on June 10, reflecting weak downstream demand. Textile mills remain cautious, with limited purchasing appetite.

From an industrial perspective, the downturn in futures is transmitting to the spot market. While lower raw material costs may ease pressure on Chinese textile mills' margins, it also signals that end-order recovery has not yet met expectations.

Practical Advice

For Buyers - Current cotton prices are at a cyclical low, but short-term rebound momentum is weak. Purchase on demand and avoid stockpiling. - Monitor next week's USDA report; if data is bullish, consider locking in forward orders before its release. - Manage currency risk using forward settlement tools, as the dollar remains a key variable.

For Exporters - Lower foreign cotton prices can reduce export product costs; consider enhancing competitiveness of high-value cotton goods. - Be cautious of potential impacts from US-Iran tensions on oil prices and shipping costs; plan logistics and delivery schedules accordingly. - Accelerate settlement during dollar weakness windows to mitigate exchange rate risks.