ICE cotton futures plunged to a one-week low on Tuesday, pressured by a strong US dollar index and falling oil prices, creating a challenging environment for the textile market.
Market Dynamics: Cotton Futures Under Pressure
The July ICE cotton contract settled at 73.96 cents per pound, down 1.25 cents, or 1.66%. The most actively traded December contract closed at 78.73 cents, losing 0.68 cents, or 0.86%, with an intraday low of 77.41 cents, the weakest since June 16.
Macro Factors: The Dollar-Oil Price Transmission
The US dollar index surged to a one-year high on Tuesday, driven by rising expectations of a Federal Reserve interest rate hike and a sell-off in big tech stocks. A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies, dampening international demand for cotton. Meanwhile, international oil prices fell over 1% amid signs of progress in US-Iran peace talks, reducing the cost of producing polyester fiber, a key substitute for cotton, and further undermining cotton's competitiveness.
Supply and Demand: Planting Completed, Quality Improves
The USDA's weekly crop progress report showed that US cotton planting reached 92% as of June 21, slightly above last year's 91% but still below the five-year average of 94%. More notably, the good-to-excellent rating improved to 53% from 50% the prior week, significantly higher than 47% a year ago. This suggests improving yield expectations for the new crop, adding pressure on forward prices.
Fund Flows: Speculative Exit and Farmer Selling
A key signal of bearish sentiment is the persistent net selling by speculative funds. According to industry brokers, speculative money that drove cotton prices above 88 cents per pound on May 13 is now exiting, with net selling observed for three to four consecutive weeks. At the same time, farmers who had previously held back from hedging, believing prices above 80 cents were safe, are now joining the selling wave. This dual selling pressure is intensifying the market's downward trend.
Impact on the Textile Industry
For downstream textile mills, the price correction offers short-term cost relief, but inventory devaluation risks must be managed. For exporters, while a stronger dollar benefits dollar-denominated orders, actual demand growth may be limited by global economic uncertainties.