The US dollar index has surged to a one-year high, while international crude oil has fallen for two consecutive sessions. Under the combined pressure, the ICE cotton futures main contract dropped to 78.73 cents per pound, briefly touching 77.41 cents, marking a new low since mid-June. The nearby July contract fell even more sharply, losing 1.25 cents in a single day to close at 73.96 cents. The cotton price decline, driven by macro-financial volatility, is reshaping the competitive landscape of global textile raw materials.
Macro Headwinds: The Dual Squeeze of the Dollar and Oil
A stronger dollar is the primary factor weighing on cotton prices. The dollar index has climbed to its highest level in a year, driven by three forces: market expectations that the Fed will keep rates high for longer, better-than-expected US economic data, and safe-haven demand from global geopolitical tensions. For buyers using non-dollar currencies, a stronger dollar means a significant increase in the real cost of importing US cotton, directly dampening overseas purchasing appetite and clouding the outlook for US cotton exports.
At the same time, weakness in the energy market has further dented bullish sentiment. International crude oil futures have fallen for two consecutive sessions, rapidly cooling inflation trade enthusiasm. Cotton, as a commodity, is losing the buying support it previously enjoyed from inflation expectations. More critically, lower oil prices directly reduce the production cost of polyester fibers. When polyester becomes more cost-competitive, downstream spinning mills often adjust their raw material mix, increasing chemical fiber usage and reducing cotton purchases. This substitution effect is particularly pronounced when cotton prices are high, and the current price near 78 cents is amplifying cotton's disadvantage in cost-effectiveness against chemical fibers.
Supply-Side Harvest Expectations Strengthen, Speculative Funds Exit
Beyond macro headwinds, supply-side news is also bearish. The latest weekly USDA crop progress report shows continued improvement in US cotton conditions. The key growing region of Texas received effective rainfall, significantly improving soil moisture, and overall cotton growth is better than last year. As of June 21, the cotton squaring rate reached 92%, up 6 percentage points from the previous week and above last year's level, just shy of the five-year average. The boll-setting rate rose to 53%, also up week-over-week and well above last year's 47%. The strong crop conditions reinforce market expectations for a bumper US crop in 2026/27, adding further pressure on prices.
On the fund flow side, speculative funds' actions confirm the market's bearish mood. Since cotton prices broke above 88 cents per pound on May 13, speculative funds began heavy selling. After that rebound ended, funds have maintained a net short position, amplifying the downward move. Many traders have already closed most of their forward sales contracts. The industry generally believes that the 80-cent level is where purchasing value begins to appear. Once prices stabilize around that level, pent-up downstream buying demand is expected to gradually emerge.
Industry Chain Impact: Fiber Substitution and Procurement Timing
For the textile supply chain, the current decline in cotton prices is not entirely negative. For downstream weaving and apparel companies, lower raw material costs mean improved profit margins. However, the substitution of chemical fibers for cotton is accelerating. Lower crude oil prices directly reduce the production cost of polyester staple fiber and filament. Although cotton prices are also falling, the decline is relatively limited, keeping the cotton-polyester spread at a high level. This means spinning mills will tend to increase chemical fiber usage and reduce cotton purchases, further depressing cotton demand.
In terms of procurement timing, traders and mills are largely adopting a wait-and-see approach. Industry data shows that US cotton stocks at bonded ports are at moderate levels, but trading volumes are thin. Buyers generally believe that cotton prices offer a safety margin only around 80 cents. Although the current price of 78 cents is already below this psychological level, the market is waiting for a clear signal of stabilization. Once the dollar index pulls back or crude oil prices stabilize, pent-up buying demand could be released, potentially triggering a bounce in cotton prices.