ICE cotton futures hit a two-week low on June 26, with the most-active December contract falling 0.59 cents to settle at 76.38 cents per pound, after touching an intraday low of 75.50 cents. The contract posted a weekly decline of 4.13%, the largest in a month. The sell-off was driven by two factors: improving weather in major global growing regions, which boosted supply expectations, and a sharp drop in crude oil prices, which weakened cotton's cost competitiveness.
Supply-Side Pressure: Weather Improves Yield Outlook
According to the latest USDA drought monitor, approximately 58% of US cotton areas were affected by drought as of the week ending June 23, down sharply from 76% the previous week. This 18-percentage-point improvement reflects adequate rainfall in May and June, creating favorable conditions for cotton growth. A brokerage executive noted that the precipitation has been quite beneficial for the US cotton harvest, leading to a more optimistic production outlook.
Meanwhile, India's monsoon, though slightly delayed, has arrived on the subcontinent. This is critical for sowing and growth in the world's second-largest cotton producer. The synchronized improvement in weather across the US, India, and Brazil is reinforcing expectations of a looser supply-demand balance for the 2026/27 season. These expectations are already reflected in the futures market, where speculative longs have reduced positions and prices have trended lower.
Cost-Side Shock: Oil Drop Reshapes Polyester-Cotton Competition
Crude oil prices posted significant weekly losses, with WTI falling 3.7% on Friday as tanker traffic resumed through the Strait of Hormuz, easing earlier supply concerns. Lower oil prices directly reduce the production cost of polyester, a key substitute for cotton in textile raw materials. This creates indirect pressure on cotton prices.
From a supply chain perspective, when polyester prices fall, spinners and weavers have greater incentive to adjust their raw material mix, increasing synthetic fiber usage and reducing cotton purchases. This substitution effect is particularly pronounced when cotton prices remain relatively firm. The current price spread between cotton and polyester staple fiber is already at historically high levels, and further oil declines could accelerate this trend, materially dampening cotton demand.
Market Focus: USDA Acreage Report Awaited
Investors are closely watching the USDA's annual planted acreage and quarterly stocks report, scheduled for release on June 30. The report will provide critical clues on supply estimates for major US agricultural commodities. Analyst surveys show that US corn stocks as of June 1 are expected to be 16.5% higher year-on-year, the highest for that date since 1988. Corn competes with cotton for planted acreage, and high corn inventories could pressure corn prices, influencing farmers' planting decisions and indirectly affecting cotton acreage.
Additionally, ICE deliverable cotton stocks continue to decline, falling to 187,250 bales on June 25 from 189,447 bales the previous day. While declining stocks typically provide some price support, this factor has not yet reversed market sentiment amid dual pressures from supply growth expectations and falling costs.
Industry Implications and Outlook
For textile mills, the current cotton price correction opens a window for raw material procurement. However, caution is warranted: the cost advantage of polyester driven by lower oil prices may persist, and spinners need to reassess their raw material mix. On the export front, a weaker US dollar benefits cotton-importing countries that trade in dollars, but the pace of downstream apparel order recovery remains the key variable determining actual demand.