A strong US dollar and weakening crude oil are driving ICE cotton futures into a deeper downturn. The December 2026 contract fell below 79 cents/lb, touching 77.41 cents/lb intraday, the lowest in nearly two weeks. For Chinese textile mills reliant on imports, this means structural changes in procurement costs—the hidden markup from dollar appreciation is heavier than the futures decline suggests.
Macro Headwinds Weigh on Cotton Prices
The US dollar index surged to a one-year high, directly raising import costs for non-dollar buyers. For Chinese mills paying in renminbi, the actual cost increase outpaces futures declines, undermining US cotton's international competitiveness. Meanwhile, crude oil fell for two consecutive sessions, cooling inflation expectations and removing speculative support from commodities.
Lower crude oil prices also reduce production costs for polyester chemical fibers, strengthening their substitution effect against cotton. For spinning mills, the raw material mix is tilting toward synthetics, threatening industrial cotton demand. Under these pressures, speculative funds accelerated exits. Since the May 13 peak at 88 cents/lb, funds have maintained net selling for over a month, amplifying the downtrend.
Improved Weather Reinforces Harvest Expectations
Supply-side news also favors bears. The USDA's weekly crop progress report showed US cotton squaring rate reached 92% as of June 21, up 6 percentage points from the previous week and above last year's level, just shy of the five-year average. The boll-setting rate hit 53%, far above last year's 47%.
Timely rainfall in Texas, the key producing region, improved soil moisture, boosting overall crop conditions above last year. Improved weather reinforces market expectations of a bumper 2026/27 US cotton crop. With weak demand, the prospect of increased supply directly limits price recovery. Industry sources believe 80 cents/lb is the reasonable purchasing level, and current prices have yet to trigger major restocking.
Industry Impact and Market Dynamics
For downstream textile mills, lower cotton prices should be bullish, but dollar appreciation offsets some benefits through higher hedging costs. This has led many traders to unwind most forward contracts and adopt a wait-and-see stance.
In the futures curve, near-month contracts fell more sharply than deferred ones—the July contract dropped 1.25 cents to 73.96 cents/lb—reflecting more immediate spot pressure. The December contract showed relatively moderate losses, hinting at lingering hope for a rebound, but that hope is being eroded by harvest expectations and fund outflows.