Dollar Strength and Crude Oil Weakness Push ICE Cotton Futures Below Key Support

The strong appreciation of the US dollar is triggering a chain reaction across the global textile industry chain. The main contract of ICE cotton futures—the December 2026 contract—closed at 78.73 cents per pound, down 0.68 cents from the previous day, hitting an intraday low of 77.41 cents per pound, the lowest since June 16. The near-month July contract fell even more sharply, closing at 73.96 cents per pound, a drop of 1.25 cents. This decline is not an isolated event but the result of multiple factors: a strong dollar, weak crude oil, improved soil moisture in US cotton regions, and the exit of speculative capital.

Macro Pressure and Substitution Effect The core driver of this round of cotton price decline comes from the macro-financial level. The US dollar index surged to a near-one-year high, driven by market expectations that the Fed will maintain high interest rates for a longer period, better-than-expected US economic data, and safe-haven demand from global geopolitical tensions. For buyers using non-US currencies, a stronger dollar directly means higher costs for importing US cotton, significantly dampening overseas purchasing appetite. According to data from China Customs, the landed cost of US cotton has risen by about 3%-5% compared to the May peak, prompting some small and medium-sized spinning mills to prioritize Brazilian or Indian cotton. Meanwhile, international crude oil fell for two consecutive trading days, directly lowering production costs for polyester and other chemical fiber raw materials. The substitution effect of chemical fibers for cotton has further strengthened—as the price gap between cotton and chemical fibers widens, downstream weaving mills tend to increase the use of polyester blended fabrics, structurally suppressing cotton demand.

Supply and Demand Fundamentals Turning Looser Good news from the supply side is also denting bullish sentiment. The latest weekly crop progress report from the US Department of Agriculture shows that as of June 21, the US cotton boll-setting rate had risen to 92%, up 6 percentage points from the previous week and higher than the same period last year, just a step away from the five-year average. The boll-opening rate reached 53%, also up from the previous week and significantly higher than 47% last year. The core producing region of Texas has received effective rainfall recently, significantly improving soil moisture, and overall cotton growth is better than last year. The expectation of a bumper harvest is gradually being digested by the market. Traders generally believe that if weather conditions remain favorable, US cotton production for the 2026/27 season could hit a multi-year high. On the demand side, there is a lack of bright spots. Global textile and apparel retail growth is slowing, destocking cycles at US and European retailers are not yet complete, and end-user orders are characterized by 'small batches, multiple runs,' with little appetite for large-scale centralized cotton purchases.

Speculative Capital Exit and Price Expectations Changes in market capital flows have further amplified the downward move. Since cotton prices surged above 88 cents per pound on May 13, a large amount of speculative capital began to sell off aggressively, and has maintained a net selling position ever since. On the trade side, most traders have actively unwound the majority of their forward pre-sale orders. The industry generally believes that the 80 cents per pound level is the price point where purchasing value emerges. Once cotton prices stabilize in this range, potential downstream procurement demand will gradually be released. Current forward contracts are also weakening: the October contract fell to 77.00 cents per pound, the March forward contract was at 79.85 cents per pound, and the May contract was at 80.82 cents per pound. Overall market sentiment is bearish, with traders cautiously waiting for a clear bottom signal.

Practical Recommendations ### For Buyers - Current cotton prices are approaching the industry's psychological threshold of 80 cents per pound. Consider building a small forward purchasing position in batches to lock in low-cost raw materials. - Monitor the price spread between chemical fibers and cotton. If chemical fiber prices continue to fall, adjust the proportion of blended fabric purchases to hedge against raw material cost fluctuations. - Prioritize Brazilian or Indian cotton as alternative sources to avoid the risk of rising US cotton import costs due to dollar appreciation.

For Export Enterprises - Include exchange rate fluctuation clauses in export quotes, or use forward exchange contracts to lock in USD revenues and prevent exchange rate volatility from eroding margins. - Closely track the USDA's monthly supply and demand report and weather changes in producing regions. If the bumper harvest expectation materializes, cotton prices could fall further below 75 cents per pound. - Negotiate shorter order cycles with downstream customers, adopting a 'small order, fast response' model to cope with raw material price uncertainty and reduce inventory risk.