Cotton futures faced a double blow on June 26, with the ICE December contract hitting a two-week low, settling at 76.38 cents/lb, a weekly decline of 4.13%. This move was driven by improving weather in major global producing regions and falling crude oil prices.
Weather Improvement: Supply Expectations Rise
Weather conditions in global cotton-producing areas are shifting in favor of increased production. USDA data shows that as of June 23, about 58% of US cotton areas were affected by drought, down sharply from 76% the previous week—meaning nearly a fifth of production areas saw drought relief in just two weeks. Adequate rainfall in May and June supports a favorable US cotton harvest. Meanwhile, the Indian monsoon, though slightly delayed, has now arrived in key production zones, providing necessary moisture for the upcoming planting season. The simultaneous improvement in weather across the world’s top two cotton producers directly strengthens market expectations for increased 2026/27 supply.
From an industry perspective, improved supply expectations are reshaping pricing logic in the cotton textile chain. For Chinese textile mills, US and Indian cotton are key import sources. If global production grows as expected, import costs could fall, easing raw material cost pressures. However, in the short term, the market must digest this expectation, and price pressure may persist.
Oil Price Pass-Through: Substitute Costs Decline
Falling oil prices were another key bearish factor for cotton this week. US crude fell 3.7% on June 26, posting a significant weekly loss, mainly due to resumed tanker traffic easing supply concerns. Lower oil prices directly reduce polyester fiber production costs. As a major substitute for cotton, cheaper polyester weakens cotton’s competitiveness in textile raw materials.
This transmission mechanism directly impacts downstream procurement decisions. When polyester prices fall with crude oil, some mills may adjust their raw material mix, increasing synthetic fiber usage and reducing cotton purchases, thereby suppressing cotton demand. Historically, oil and cotton prices show positive correlation, especially in the synthetic fiber sector where energy costs account for a high proportion.
Market Focus: Key USDA Report Ahead
Market sentiment is cautious as investors await the USDA’s annual acreage and quarterly stocks report on June 30. This report will provide critical data on US new-crop planting scale and old-crop inventory levels, key to assessing future supply-demand balances. Analyst surveys show expectations for corn stocks at nearly 40-year highs, suggesting ample overall agricultural supply, which could add pressure on cotton prices.
ICE data shows deliverable No. 2 cotton futures stocks fell to 187,250 bales as of June 25, down from the previous day, indicating limited spot market delivery appetite. However, the futures market’s main drivers remain weather and macro factors.