The US dollar index has surged to its highest level in nearly a year, combined with consecutive declines in international crude oil prices and significantly improved soil moisture in US cotton growing regions, creating a perfect storm of bearish factors for ICE cotton futures. The benchmark December contract fell below 79 cents per pound, hitting a new low since mid-June, prompting the industry to reassess its purchasing strategies.
Dollar and Crude Oil Double Whammy
The dollar index has climbed steadily, reaching levels not seen in nearly a year. Market expectations that the Federal Reserve will maintain higher interest rates for a longer period, coupled with stronger-than-expected US economic data and geopolitical safe-haven demand, have provided strong support for the greenback. For buyers using non-dollar currencies, a stronger dollar means significantly higher import costs for US cotton, directly undermining its price competitiveness in the global market.
At the same time, international crude oil futures fell for two consecutive sessions. The decline in energy prices not only dampened overall commodity inflation sentiment but also lowered production costs for synthetic fibers like polyester. When chemical fibers become more price-competitive relative to cotton, textile mills tend to increase their use of synthetics, further suppressing cotton demand. This combination of a strong dollar and weak oil is pressuring cotton prices from both macroeconomic and substitution perspectives.
Bumper Crop Expectations and Fund Selling
Supply-side news has also weighed on market sentiment. The USDA's latest weekly crop progress report showed continued improvement in US cotton conditions. Texas, the core producing region, received beneficial rainfall, significantly improving soil moisture, and overall cotton growth levels are better than last year. As of June 21, the US cotton squaring rate reached 92%, up 6 percentage points from the previous week and above last year's level, just shy of the five-year average. The boll-setting rate also rose to 53%, well above last year's 47%. These data strengthened expectations for a bumper 2026/27 US cotton crop.
From a fund flow perspective, speculative funds began heavy selling after prices peaked above 88 cents/lb on May 13 and have maintained a net short position since then, amplifying the downtrend. Many traders have already unwound most of their forward sales contracts, and the industry generally sees the 80 cents/lb level as a value zone where buying interest would emerge. Once prices stabilize in this range, downstream demand is expected to gradually return.
Market Sentiment and the Buying Window
Market data shows the December 2026 contract settled at 78.73 cents/lb, down 0.68 cents from the previous session, with an intraday low of 77.41 cents/lb. The nearby July contract fell even more sharply, closing at 73.96 cents/lb, a single-day drop of 1.25 cents. Other deferred contracts also weakened: the October contract fell to 77.00 cents/lb, the March 2027 forward contract settled at 79.85 cents/lb, and the May 2027 contract at 80.82 cents/lb.
Notably, current prices are below the psychological threshold for many industry participants. Traders had generally viewed 80 cents/lb as the dividing line for purchases: above this level, they would wait; below it, buying interest would increase. With the benchmark contract now below 79 cents, some pent-up demand may start to enter the market. However, given that the dollar's strength shows no signs of peaking and bumper crop expectations continue to build, the potential for a near-term price rebound appears limited.