The cotton market is undergoing a rapid correction driven by macro sentiment. ICE cotton's December futures contract settled at 76.26 cents/lb on June 24, down 3.14% on the day, hitting a two-week low of 76.15 cents/lb intraday. This marks the fourth consecutive session of declines, wiping out nearly all gains built since mid-May.
Macro Headwinds: Dollar Strength and Oil Slump
The selloff is not fundamentally driven but triggered by external macro volatility. The US dollar index surged to 101.8 on June 24, a 13-month high, as markets priced in further Fed rate hikes amid a tech stock rout. A stronger dollar makes US cotton more expensive for overseas buyers, dampening import demand.
Meanwhile, global crude oil prices plunged over $3/barrel to their lowest since the Iran conflict de-escalated, as more stranded tankers cleared the Strait of Hormuz. Lower oil prices reduce polyester production costs, widening polyester's cost advantage over cotton and putting additional pressure on cotton prices.
Spot Market Follows Lower, Mills Turn Cautious
The futures rout has spilled into the physical market. The Cotlook A index fell 75 points to 87.55 cents/lb on June 24. Although spot prices declined less than futures, the widening basis reflects growing caution among traders and mills. Major importers like China, Vietnam, and Bangladesh still hold elevated cotton yarn inventories, and end-user orders remain tepid. Mills are adopting hand-to-mouth buying strategies, reluctant to build stocks amid a downtrend.
Notably, the July contract fell only 1.25 cents to 73.96 cents/lb, outperforming the deferred month. The narrowing of the front-back spread suggests the market is not extremely bearish on near-term supply-demand, but the macro uncertainty and new-crop supply expectations are being repriced.
USDA Reports as Key Catalyst
Market attention now turns to two critical USDA reports due June 30: the Acreage report and the Quarterly Stocks report. These will provide the first official supply-side anchor for the new crop. Recent widespread rains in key US cotton regions, especially Texas, have improved soil moisture, raising expectations for higher yields. If the acreage figure exceeds trade estimates, December futures could test 75 cents/lb or lower.
The weekly USDA export sales report, due June 26, will also be closely watched. In the week ending June 11, 2025/26 net sales totaled 177,100 bales, down 15% week-on-week, while shipments fell 16% to 251,000 bales. Continued weakness would confirm that overseas buyers are staying on the sidelines at current price levels.
Near-Term Outlook: Battle at 76 Cents
Technically, the 76 cents/lb level offers strong support, as it was the launch point for the mid-May rally. However, with the dollar in a strong cycle and oil prices depressed, cotton lacks a clear catalyst to rebound. For textile mills, current prices are approaching production costs in some origins, limiting further downside, but a meaningful rally requires macro stabilization or a bullish surprise from the USDA reports.