Dollar and Crude Oil Double Squeeze ICE Cotton Below 80 Cents, Buying Window May Open for Downstream

The ICE cotton futures main contract for December 2026 hit an intraday low of 77.41 cents per pound on June 25, eventually closing at 78.73 cents, the lowest since June 16. The nearby July contract fell even more sharply, dropping 1.25 cents to settle at 73.96 cents per pound. This decline is not driven by a single factor but by a convergence of multiple bearish forces: the US dollar exchange rate, crude oil prices, growing region weather, and fund sentiment.

Macro Pressure from Dollar and Crude Oil

The US dollar index climbing to a near one-year high is the primary factor weighing on cotton prices. The Federal Reserve's high-interest-rate policy is expected to persist, coupled with better-than-expected US economic data and geopolitical safe-haven demand, pushing the dollar higher. For buyers using non-US currencies, a stronger dollar means higher actual costs for importing US cotton, directly undermining export competitiveness. Meanwhile, international crude oil futures fell for two consecutive trading days, cooling inflation trading momentum. Lower oil prices reduce production costs for synthetic fibers like polyester, strengthening their substitution effect on cotton—a further blow to an already demand-challenged cotton market.

Improved Weather: Harvest Expectations Weigh on Sentiment

The supply side also delivered bearish signals. The latest USDA crop progress report shows improving conditions for US cotton. The key growing region of Texas received beneficial rainfall, significantly improving soil moisture, with overall growth markedly better than last year. As of June 21, the US cotton squaring rate reached 92%, up 6 percentage points from the previous week, above last year's level and close to the five-year average. The boll-setting rate rose to 53%, also up week-on-week and well above last year's 47%. Favorable crop conditions have strengthened market expectations for a bountiful harvest this year, adding further pressure to prices.

Fund Flows: Speculative Selling Persists, Industry Awaits 80 Cents

Looking at fund flows, since cotton prices broke above 88 cents per pound on May 13, speculative funds began concentrated selling and have maintained a net short position, amplifying the downtrend. Many traders have already closed most forward-sale orders. The industry generally views the 80-cent level as the price point with purchasing value. Once prices stabilize in this range, downstream demand may gradually emerge. This suggests that current prices have entered the "comfort zone" for some buyers; absent new systemic bearish factors, demand could provide some bottom support.

Practical Recommendations

For Buyers - Monitor for stabilization signals in the 78-80 cents per pound range; consider locking in forward orders in batches once the market shows signs of bottoming. - Watch the US dollar trend; if the dollar retraces, accelerate procurement to lower import costs. - Compare the price spread between cotton and synthetic fibers; if the substitution effect intensifies, adjust raw material ratios to control costs.

For Exporters - Given the dollar's pressure on US cotton export competitiveness, explore pricing from other producing countries like Brazil or India for diversified sourcing. - Maintain communication with downstream clients to gauge their inventory levels and purchasing intentions, enabling quick response to orders when prices stabilize. - Use forward contracts to lock in some order prices, hedging against short-term price volatility.