The dollar index has climbed to a near one-year high, while crude oil prices continue to weaken. These two forces are squeezing cotton prices from both cost and substitution angles. The main ICE cotton futures contract has fallen to 78.73 cents/lb, a new low since June 16.
Macro and Substitution Pressures
The impact of a stronger dollar on cotton prices is clear. With the dollar index at a one-year high, import costs for non-U.S. buyers have risen, reducing willingness to purchase U.S. cotton. This exchange rate effect has been playing out in recent weeks, reflected in weaker export sales data.
Meanwhile, crude oil prices have fallen for two consecutive sessions, lowering production costs for polyester and other synthetic fibers. This strengthens the substitution effect of synthetics for cotton, adding pressure on cotton demand.
Market Data and Fund Flows
Looking at specific contracts, the December 2026 contract closed at 78.73 cents/lb, down 0.68 cents, with an intraday low of 77.41 cents/lb. The nearby July contract fell more sharply, closing at 73.96 cents/lb, down 1.25 cents. Forward contracts also weakened, with the October contract at 77.00 cents/lb and the March 2027 contract at 79.85 cents/lb.
Speculative fund activity has amplified the downtrend. After cotton prices peaked at 88 cents/lb on May 13, funds began heavy selling and have remained net sellers since. This persistent outflow prevents any sustained rebound. At the trade level, many companies have closed out forward sales orders, with the industry seeing 80 cents/lb as the price point where buying value emerges.
Supply-Side Headwinds
The latest USDA weekly crop progress report shows improving U.S. cotton conditions. Effective rainfall in the key Texas region has restored soil moisture, with overall crop development ahead of last year. As of June 21, the cotton squaring rate reached 92%, up 6 percentage points week-on-week and above the year-ago level. The boll-setting rate rose to 53%, well above last year's 47%. These favorable conditions reinforce expectations of a bumper harvest, further pressuring prices.
Key Variables for Stabilization
The market faces multiple bearish factors simultaneously — a strong dollar, weak oil, improved crop conditions, and sustained speculative selling. However, uncertainties in the Middle East remain, and energy price volatility could shift inflation expectations. A rebound in crude oil or a temporary dollar pullback could trigger a corrective rally in cotton.
For downstream textile mills, current prices are approaching the range where the industry sees buying value. If cotton stabilizes in the 78-80 cents/lb range, potential demand could gradually materialize.