The US dollar index surged to a near one-year high, while international crude oil fell for two consecutive days, delivering a double blow to ICE cotton futures. The main December contract closed at 78.73 cents per pound, down 0.68 cents from the previous day, with an intraday low of 77.41 cents, the lowest since June 16. The nearby July contract fell even more sharply, settling at 73.96 cents, down 1.25 cents in a single day.
Dollar and Oil: Two External Pressures
A stronger dollar is the primary driver behind this price decline. Markets widely expect the Federal Reserve to maintain higher interest rates for a longer period, coupled with better-than-expected US economic data and geopolitical safe-haven demand, pushing the dollar index higher. For buyers using non-US currencies, a stronger dollar means higher actual costs for importing US cotton, directly suppressing overseas purchasing intentions and clouding the export outlook. Many analysts rank the strong dollar as the top bearish factor for cotton prices.
At the same time, falling crude oil futures further dampened the overall commodity sentiment. Lower oil prices directly reduce the production costs of polyester and other synthetic fibers, strengthening the substitution effect of chemical fibers for cotton. This means textile mills may favor synthetics over cotton, compressing demand for the natural fiber. Energy price volatility also changed market inflation expectations, stripping cotton of its inflation-hedge support.
Supply and Fund Factors Add Pressure
Supply-side news was also unfavorable. The latest weekly USDA crop progress report showed continued improvement in US cotton conditions. Key producing state Texas received beneficial rainfall, significantly improving soil moisture, with overall crop growth better than last year. As of June 21, the US cotton boll-setting rate rose to 92%, up 6 percentage points week-on-week, above last year's level and close to the five-year average. The squaring rate reached 53%, also up week-on-week and far above last year's 47%. These improving crop data reinforced market expectations of a bumper harvest, adding further pressure on prices.
Fund flows are also amplifying the downtrend. After prices broke above 88 cents per pound on May 13, speculative funds began heavy selling, setting the stage for the subsequent decline. Since the end of that May rebound, speculative funds have remained net sellers, continuously widening the downward move. Many traders have already closed most forward sales contracts. The industry generally views 80 cents as a level with purchasing value; once prices stabilize there, downstream buying demand is expected to gradually emerge.
Outlook: 80 Cents as Key Psychological Level
In summary, the combination of a dollar at a one-year high, falling crude oil, improving US cotton crop conditions, better soil moisture in growing regions, and persistent speculative selling has driven ICE cotton futures to their lowest level in a week. As of the morning Indian Standard Time, prices remained weak: the December contract traded at 78.55 cents, down 0.18 cents; spot cotton at 73.43 cents, down 0.86 cents; and the July contract held at 73.96 cents. Other deferred contracts also weakened, with October at 77.00 cents, March 2027 at 79.85 cents, and May 2027 at 80.82 cents.
For the textile supply chain, the current price decline means a potential buying window is opening. However, given the uncertainty of the dollar and oil trends, as well as subsequent weather changes, prices may still test lower levels in the short term. The 80-cent level is seen by the industry as a value-buying zone; once prices stabilize there, downstream procurement is expected to pick up.