ICE cotton futures experienced a notable decline on June 23, with the most-active December contract falling 0.86% to settle at 78.73 cents per pound, after touching an intraday low of 77.41 cents—the lowest since June 16. The nearby July contract dropped even more sharply, losing 1.25 cents or 1.66% to close at 73.96 cents. This selloff was driven not by cotton-specific fundamentals but by a combination of macroeconomic pressures and substitution effects.
Macro Headwinds: Dollar at One-Year High, Rate Hike Expectations
The US dollar index surged to its highest level in over a year on June 23, fueled by growing expectations that the Federal Reserve may restart its rate-hiking cycle. A hawkish tone from the new Fed chair and a selloff in big-tech stocks further boosted the dollar's safe-haven appeal. For dollar-denominated cotton, a stronger dollar makes the commodity more expensive for overseas buyers, directly dampening international demand.
Georgia-based cotton broker Keith Brown noted that the dollar's rise to a one-year high is a key factor dragging cotton prices lower, and the possibility of a new rate-hiking cycle adds further macro pressure. Cotton prices had rallied above 88 cents in mid-May, but speculative money that drove that rally is now exiting. Over the past three to four weeks, speculative positions have been net short, with long positions shrinking significantly.
Substitution Impact: Falling Oil Prices Lower Polyester Costs
International oil prices also weakened on June 23, with Brent crude falling over 1%. Progress in US-Iran peace talks eased concerns about disruptions to crude shipments through the Strait of Hormuz, pushing oil prices lower. Lower oil prices reduce the production cost of polyester—a major substitute for cotton—making it more competitive and diverting demand away from natural fibers. This "crude-polyester-cotton" transmission chain is particularly relevant in today's global textile raw material market. When polyester prices fall due to cheaper oil, spinners and fabric mills tend to shift toward synthetic fibers, reducing cotton demand.
Fundamentals: US Planting Nearly Complete, Crop Conditions Improve
The USDA's weekly crop progress report showed that US cotton planting had reached 92% completion as of June 21, slightly ahead of last year's 91% and close to the five-year average of 94%. The good-to-excellent rating improved to 53% from 50% the prior week and was notably higher than last year's 47%. This points to a favorable new-crop production outlook, adding supply-side pressure.
Some farmers who had delayed hedging when prices were above 80 cents now began selling physical cotton as futures fell to around 78 cents, further increasing market supply. The combination of speculative fund exits and farmer selling makes it difficult for prices to rebound in the near term.
Outlook: Near-Term Weakness, Watch 80-Cent Level
In summary, ICE cotton faces dual pressures from macro and fundamental factors. The strong dollar trend is unlikely to reverse soon, and if oil prices continue to fall, polyester's substitution effect will intensify. Improved US crop conditions and normal planting progress lay the groundwork for a looser supply-demand balance.
Technically, the December contract found some support near 78 cents, but a break below 77 cents could open the door to 75 cents. On the upside, 80 cents has become a key resistance level, and with speculative money exiting, a significant breakout appears unlikely in the near term.