The US dollar index surged to a near one-year high, combined with consecutive declines in international crude oil, driving the ICE cotton futures December 2026 contract to close at 78.73 cents per pound on June 25, with an intraday low of 77.41 cents, the lowest since June 16. The near-month July contract fell even more sharply, dropping 1.25 cents to close at 73.96 cents. This decline is not driven by a single factor but by a confluence of macro-financial and fundamental pressures.
Macro Pressure: Dual Impact of Strong Dollar and Crude Oil Crash
The sharp rise in the US dollar index is the primary driver behind this cotton price slump. The market widely expects the Fed to maintain high interest rates for a longer period, coupled with better-than-expected US economic data and geopolitical safe-haven demand, pushing the dollar index to a one-year high. This means non-dollar buyers face higher import costs for US cotton, directly dampening overseas purchasing appetite and clouding US cotton export prospects.
Meanwhile, international crude oil fell for two consecutive sessions, rapidly cooling inflation trade sentiment. Lower oil prices not only remove the inflation support that commodities like cotton previously enjoyed but also reduce production costs for synthetic fibers like polyester, strengthening the substitution effect of synthetic fibers over cotton. For textile mills, this transmission means synthetic fibers become more cost-competitive, and cotton demand faces the risk of being squeezed out.
Fundamental Outlook: Strengthened Harvest Expectations and Speculative Fund Exit
Supply-side positive news also dampened bullish sentiment. The USDA's weekly crop progress report showed continued improvement in US cotton conditions. As of June 21, the cotton squaring rate reached 92%, up 6 percentage points from the previous week and above last year's level, just a step away from the five-year average. The boll-setting rate rose to 53%, also up week-on-week and significantly above last year's 47%. Effective rainfall in the core producing region of Texas improved soil moisture, with overall crop growth better than last year. These data reinforced market expectations of a bumper US cotton harvest, further pressuring prices.
From a fund flow perspective, after prices broke above 88 cents on May 13, a large amount of speculative capital began concentrated selling, laying the groundwork for the subsequent decline. Speculative funds have remained net sellers since then, amplifying the downward move. Many traders have already unwound most forward pre-sale orders. The industry generally believes that around 80 cents per pound is the level where buying value emerges. Once prices stabilize in this range, downstream potential purchasing demand will gradually be released.
Price Transmission: Practical Impact on Buyers and Exporters
For buyers, while current cotton prices are low, it does not mean immediate entry is wise. The strong dollar means actual import costs are still rising, and crude oil price fluctuations could further intensify synthetic fiber substitution. Buyers should closely monitor:
- Whether the dollar index shows a phased pullback, which directly affects import costs;
- International crude oil price trends, as further declines would strengthen substitution;
- Weather changes in US cotton regions, especially Texas rainfall, which relates to final yield expectations.
For foreign trade companies, risk management is more critical in the current environment. Recommended strategies include:
- Using forward contracts to lock in part of procurement costs, avoiding inventory depreciation risk from further price declines;
- Monitoring RMB exchange rate fluctuations, as in a strong dollar cycle, exchange rate changes can become an additional cost variable;
- Adjusting product mix to appropriately increase blended synthetic fiber ratios, hedging cost uncertainty from cotton price volatility.
Outlook: Short-term Pressure, but Bottom Support Forming
In summary, multiple bearish factors—high dollar index, weak crude oil, strong US harvest expectations, and sustained speculative fund selling—will keep cotton prices under short-term pressure. However, the industry widely believes that around 80 cents per pound is a value-buying level. Once prices stabilize in this range, downstream demand will gradually be released. Additionally, uncertainties remain in the Middle East, and energy price fluctuations could change market inflation expectations at any time. Traders need to closely monitor regional developments.
For textile industry practitioners, the key now is not to predict the bottom but to establish flexible risk management mechanisms and seek structural opportunities amid price volatility.