Cotton Prices Bounce from Lows: Dollar Weakness and Middle East Risks Tighten Buying Window

At 76.09 cents per pound, the December ICE cotton futures contract hit a two-week low during intraday trading on June 25, only to close at 76.97 cents, up 0.93%. This intraday reversal was not driven by a fundamental shift but by a confluence of short-term factors converging at a key price level. For textile mills reliant on imported cotton, this price range warrants close attention: the cost floor is being redefined.

Dollar Weakness and Export Competitiveness The US dollar index fell on June 25 after three consecutive days of gains, following a series of US economic data—including inflation figures—that dampened expectations of a Federal Reserve rate hike this year. A weaker dollar directly benefits US cotton exports priced in the currency, making them cheaper for overseas buyers holding non-dollar currencies. However, whether this advantage translates into actual orders remains uncertain. Chinese customs data show no significant surge in recent imported cotton arrivals, with downstream mills still purchasing on a hand-to-mouth basis.

Middle East Geopolitical Risks: From Oil to Synthetic Fiber Substitution On the same day, international oil prices rose over 2%, triggered by an attack on a cargo vessel near Oman and the subsequent suspension of evacuation operations for vessels stranded in the Strait of Hormuz. This reignited concerns about the timeline for restoring Middle East oil supplies to pre-Iran-war levels. Higher oil prices directly impact cotton prices through the polyester channel: crude oil is the main raw material for polyester fibers, which compete with cotton in textile applications. When oil prices push up synthetic fiber costs, cotton gains a relative price advantage, prompting some mills to adjust blending ratios and increase cotton consumption.

Technical Buying and Speculative Fund Activity StoneX senior vice president Bailey McHenry noted that after the previous day's sharp selloff, the market saw technical repositioning, with speculative funds stepping in near the 76-cent level. This price point is viewed as a near-term support by buyers. Positioning data shows that speculative net long positions had declined in the prior week but did not indicate a panic exit. The current price range sits at a key battleground: a break below 76 cents could trigger further stops, while a firm hold above 77 cents may attract more buying.

Export Data: Demand Remains Weak The USDA weekly export sales report for the week ending June 18 showed: - Current-year net sales of 83,864 bales, down 53% from the prior week and 61% from the four-week average - Next-year net sales of 67,089 bales - Shipments of 300,155 bales, up 20% week-over-week but still 16% below the four-week average - Shipments to China of 12,248 bales

The sharp decline in old-crop sales indicates that overseas buyers have little appetite to chase prices at current levels. While new-crop sales showed some volume, absolute figures remain low, reflecting market divergence on forward price direction.

Operational Recommendations ### For Procurement Managers - The 76-cent level may serve as a short-term floor; if the dollar weakens further or Middle East tensions escalate, prices could quickly move away from this zone - Consider locking in partial forward orders in batches to hedge against sudden cost spikes from geopolitical risks - Monitor the price correlation with substitute fibers (polyester staple fiber); if oil prices continue to rise, cotton's support level will strengthen

For Export-Oriented Mills - Build currency fluctuation buffers into export quotations, as a weaker dollar may compress renminbi-denominated margins - Proactively discuss raw material cost volatility with overseas clients to negotiate price adjustment clauses - Track ICE speculative positioning; a rapid increase in net longs could signal the start of a new uptrend