The US dollar index surged to a one-year high, while crude oil prices softened on progress in US-Iran nuclear talks, dealing a double blow to ICE cotton futures on June 23. The most-active December contract hit a one-week low of 77.41 cents per pound before settling at 78.73 cents, down 0.68 cents. The nearby July contract fell even more sharply, dropping 1.25 cents to 73.96 cents. This move is not an isolated event but the result of three converging forces: macro sentiment, substitute costs, and fundamental supply-demand dynamics.
Currency and Energy: Two External Transmission Chains
A stronger dollar is systematically bearish for dollar-denominated commodities. When the dollar appreciates, overseas buyers holding other currencies face higher local costs, dampening import demand. On June 23, the dollar index rose to its highest in over a year, fueled by rising expectations of a Fed rate hike and a sell-off in big-tech stocks that boosted safe-haven demand for the greenback. For major cotton importers like China, Vietnam, and Bangladesh, this translates into an implicit increase in procurement costs.
Falling oil prices add pressure from the substitution angle. Brent crude fell more than 1% as signs of progress in US-Iran talks eased concerns about crude transport through the Strait of Hormuz. Lower oil prices reduce the production cost of polyester, cotton's main synthetic substitute. When polyester becomes more cost-competitive, mills tend to adjust their fiber mix, reducing cotton consumption and weighing on demand expectations.
Speculative Capital Exit and Farmer Selling: A Feedback Loop
On the supply side, cotton prices have been retreating since hitting a peak above 88 cents on May 13. Industry brokers note that speculative longs have been net sellers for the past three to four weeks, with the capital that previously drove prices above 88 cents gradually exiting. This capital, often driven by macro bets or weather speculation, becomes less willing to hold positions when the dollar strengthens and rate-hike expectations rise.
At the same time, a group of farmers who had delayed hedging are now joining the sell-off. These farmers considered prices above 80 cents safe enough to avoid locking in profits, but as futures fell below 78 cents, their psychological threshold was breached, forcing sales at lower levels. This negative feedback loop of "selling into weakness" has intensified near-term downward pressure.
US Planting Wraps Up with Improved Conditions
The USDA's weekly crop progress report for the week ending June 21 showed US cotton planting at 92%, slightly ahead of last year's 91% and near the five-year average of 94%. This means the northern hemisphere's new-crop supply outlook is shifting from uncertainty toward certainty. More importantly, the good-to-excellent rating improved to 53% from 50% the prior week and above 47% a year ago. Better condition ratings imply higher yield potential, and absent extreme weather, the 2025/26 US crop could remain at elevated levels.
For buyers, the window before new-crop arrival is becoming delicate: old-crop inventories are tightening, providing some spot-market support, but new-crop增产 expectations combined with macro headwinds are weighing on forward prices. The spread between July and December contracts has narrowed to around 5 cents, reflecting a flattening contango structure and a market that is not optimistic about distant prices.