The US dollar index has climbed to a one-year high, crude oil prices have fallen for two consecutive sessions, and key cotton-growing regions in Texas have received beneficial rainfall—three forces simultaneously hitting the cotton market. ICE cotton futures have decisively broken below the 80 cents/lb mark. On June 25, the December 2026 contract touched an intraday low of 77.41 cents/lb before closing at 78.73 cents/lb, the lowest since mid-June. The nearby July contract fell even further, dropping 1.25 cents to 73.96 cents/lb.
Dual Transmission of Dollar Strength and Weaker Oil
The core driver of this round of cotton price decline comes from the macro-financial side. The dollar index surged on expectations that the Fed will maintain high rates for longer, better-than-expected US economic data, and safe-haven demand from geopolitical tensions. A stronger dollar directly raises the effective cost for buyers using non-dollar currencies such as the Chinese yuan, Vietnamese dong, and Bangladeshi taka, thus undermining US cotton export competitiveness. Historical patterns show that for every 1% rise in the dollar index, emerging market textile companies reduce their willingness to buy US cotton by an average of 2-3 percentage points.
Meanwhile, falling crude oil prices have directly lowered production costs for polyester staple fiber and filament. Lower chemical fiber costs enhance their substitution effect for cotton, especially as end-consumer apparel demand remains sluggish. Spinning mills, particularly in Southeast Asia, have already adjusted their blending ratios, increasing chemical fiber usage from the conventional 30% to over 40%.
Bumper Crop Expectations Lock in Bearish Tone
Supply-side signals are also bearish. The latest USDA crop progress report shows that as of June 21, US cotton squaring reached 92%, up 6 percentage points week-on-week, higher than last year and just shy of the five-year average. Boll-setting reached 53%, well above last year's 47%. Beneficial rainfall in Texas has improved soil moisture, and crop conditions continue to improve. This reinforces market expectations for a bumper 2026/27 crop, further pressuring prices.
Speculative fund activity has amplified the decline. Since the rally peaked at 88 cents/lb on May 13, funds have maintained net selling, creating a one-way bearish structure that magnifies any negative news. Many traders have unwound most forward sales contracts, with the industry consensus viewing the 80-cent level as a viable purchasing threshold. Downstream demand is expected to materialize only after prices stabilize in this range.
Response Logic Across the Supply Chain
For Chinese textile mills, current US cotton prices have entered a watchable range but are not yet at the point for large-scale restocking. If prices consolidate around 78-80 cents/lb with rising volume, it could signal a bottom. Given exchange rate fluctuations and import quota costs, actual landed prices need to account for these factors, and mills should monitor the spread between domestic and international cotton prices.
For Southeast Asian spinners, the stronger dollar imposes more direct cost pressure. Mills in India, Vietnam, and Bangladesh need to reassess the value proposition of US cotton versus alternatives like Brazilian or West African cotton. At the same time, the enhanced substitution effect from chemical fibers gives these mills more flexibility in raw material blending, potentially dampening demand for pure cotton yarns in the near term.
Key Variables Ahead
In the short term, whether cotton prices can stabilize depends on three factors: whether the dollar index sees a corrective pullback, whether Middle East tensions trigger an energy price rebound, and whether weather in US cotton regions introduces new supply disruptions. If these factors turn positive, prices could form a base around 78-80 cents/lb. If bearish forces persist, the main contract could test the 75 cents/lb support level.
Longer-term dynamics are more complex. Current prices are below the cost of production for many farmers, which could affect 2027/28 planting intentions globally. Meanwhile, the ongoing substitution by chemical fibers may permanently alter the raw material mix for spinning. The entire textile supply chain needs to reassess the long-term price relationship between cotton and chemical fibers and adjust procurement and business strategies accordingly.