Cotton prices are undergoing a significant revaluation. ICE cotton futures for the December 2026 contract closed at 78.73 cents per pound, hitting a new low since June 16, with an intraday low of 77.41 cents. The nearby July contract fell even more sharply, dropping 1.25 cents to 73.96 cents. This decline is not driven by a single factor but results from a confluence of macro-financial and fundamental pressures.
Macro Headwinds: Strong Dollar and Falling Oil Prices
The US dollar index has surged to its highest level in nearly a year, becoming the primary macro factor weighing on cotton prices. A stronger dollar means non-US buyers must pay more for the same volume of cotton, directly dampening overseas demand. Markets widely expect the Federal Reserve to maintain higher interest rates for longer, and robust US economic data alongside geopolitical risk are supporting the dollar, making a near-term reversal unlikely. This will continue to pressure US cotton export competitiveness.
Meanwhile, international crude oil prices have fallen for two consecutive sessions, cooling inflation trade sentiment. Lower oil prices reduce production costs for polyester, a key synthetic fiber, strengthening its substitution effect against cotton. For textile mills, the price advantage of switching to synthetics is widening, diverting consumption away from cotton.
Supply Side: Texas Rainfall Boosts Crop Prospects
The latest USDA crop progress report delivered a clear bearish signal. As of June 21, the US cotton squaring rate reached 92%, up 6 percentage points from the previous week, exceeding last year's level and nearly matching the five-year average. The boll-setting rate rose to 53%, also up from the previous week and well above last year's 47%.
Timely rainfall in Texas, the key producing region, has significantly improved soil moisture. Earlier concerns about drought in Texas have largely dissipated, replaced by expectations of higher yields. Improving crop conditions mean a higher probability of a bumper crop in the 2026/27 season, further pressuring bullish sentiment.
Fund Flows: Speculators Exit, Mills Wait
Since cotton prices broke above 88 cents on May 13, speculative funds have been aggressively selling, maintaining a net short position that amplifies the downtrend. Many traders have unwound most of their forward sales contracts, and the industry generally sees 80 cents as the key buying level. Once prices stabilize around this level, downstream buying interest is expected to emerge.
Current prices have broken below 80 cents, but mill buying has not yet picked up significantly, indicating the market is still waiting for a clearer bottom. Far-month contracts are also weakening: the October contract fell to 77.00 cents, the March 2027 contract to 79.85 cents, and the May 2027 contract to 80.82 cents, with some contracts seeing no trading activity.
Industry Impact: Profit Redistribution Along the Chain
Lower US cotton prices have a dual impact on Chinese textile mills. On one hand, cheaper imported cotton helps control raw material costs and boosts export competitiveness. On the other hand, faster substitution by synthetics may erode cotton's market share, especially in lower-count yarns. For export-oriented apparel firms, the strong dollar and falling cotton prices mean overseas customers have more bargaining power, potentially squeezing order prices.
More notably, current prices are below most farmers' production costs. If they remain low, next year's planted area could adjust. However, in the short term, bumper crop expectations and macro headwinds remain dominant.