76 cents per pound—that was the battleground for ICE cotton futures on June 25. The December contract hit a two-week low of 76.09 cents in early trading before rebounding to settle at 76.97 cents, up 0.93%. Behind this seemingly modest gain lies a complex interplay of a weaker dollar, crude oil volatility, and export data.
Weaker Dollar: Temporary Respite or Trend Reversal?
The dollar index ended a three-day rally after US inflation data came in below expectations, dampening market bets on a Fed rate hike this year. This made dollar-denominated cotton cheaper for overseas buyers, providing immediate support to futures. However, this pullback looks more like a technical correction than a trend reversal. If upcoming PCE data shows renewed inflationary pressure, the dollar could strengthen again, weighing on cotton prices. Textile companies should monitor next week's PCE release as a key indicator.
Bargain Buying and Crude Oil Linkage: How Solid Is the Support?
Bargain hunters stepped in after the previous day's sharp sell-off. StoneX senior vice president Bailey McHenry noted that speculative funds engaged in technical repositioning, with strong buying interest forming around the 76-cent level. But such technical-driven buying tends to be short-lived—once prices rise above 78 cents, profit-taking pressure will likely emerge.
Crude oil added an extra tailwind. On June 25, oil prices jumped about 2% after a cargo vessel was attacked near Oman, prompting the International Maritime Organization to suspend evacuation operations in the Strait of Hormuz. Rising Middle East tensions renewed supply concerns. Higher oil prices increase polyester fiber costs, making cotton more competitive as a substitute. However, the transmission to textile mills typically takes 2-4 weeks.
USDA Export Report: Total Volume Recovers but China Demand Stays Weak
The USDA's weekly export sales report showed net sales of 83,864 bales for the current season and 67,089 bales for the next season, totaling roughly 150,953 bales. While the total improved from the prior week, it was still 53% below the same week last year and 61% below the four-week average, indicating cautious global buying.
Shipments to China were particularly weak—only 12,248 bales out of a total 300,155 bales, accounting for less than 5%. As the world's largest cotton importer, China's restrained purchasing suggests that restocking by Southeast Asian textile countries has not fully filled the gap. Mills in Keqiao, Nantong, and other Chinese textile hubs report maintaining 1-2 months of raw material inventory, with little appetite for large-scale replenishment.
Implications for the Supply Chain
For ginners and traders, the stabilization in the 76-77 cent range offers a hedging window. The Cotlook A Index stood at 85.05 cents per pound, maintaining a premium of about 8 cents over futures.
Weaving mills face a dilemma: if cotton prices continue to rally, production costs will rise; but delaying procurement risks future shortages. Operating rates in Shengze and Nantong remain low at 65%-70%, reflecting weak end-demand that does not support a sustained price surge.