The US Dollar Index touched 101.8 on June 24, its highest level since May 2025, driven by market expectations of continued Fed rate hikes and safe-haven demand from a tech stock selloff. For global textile trade, a stronger dollar directly increases the cost of dollar-denominated US cotton for foreign buyers, dampening purchasing appetite from importing countries' mills.
The same day, Brent crude oil fell over $3 to its lowest level since before the Iran war. The trigger was the departure of previously stranded tankers from the Strait of Hormuz, easing supply disruption fears. For the textile industry, the more direct impact of falling oil is that polyester, a key substitute for cotton, becomes cheaper as upstream PTA prices come under pressure, enhancing the substitution effect.
Market Reaction and Capital Logic
ICE cotton futures fell for a fourth consecutive session. The most active December contract settled at 76.26 cents per pound, down 3.14%. It hit an intraday low of 76.15 cents, the weakest since June 15. The nearby July contract also weakened, falling 1.25 cents to 73.96 cents. This contrasts sharply with the high of over 88 cents per pound seen in mid-May, a retreat of more than 13% in two months.
The dollar-oil double blow is just the trigger. The deeper reason is shifting market expectations for the 2025/26 global cotton supply-demand balance. The USDA's June report maintained a tight ending stocks estimate, but the market is more focused on the June 30 planting and quarterly stocks reports. The consensus is that US cotton acreage may recover due to eased drought, and higher-than-expected data would further pressure prices.
Export Data Reveals Demand Weakness
Export signals are also concerning. USDA data for the week ending June 11 showed 2025/26 net sales of 177,100 bales, down 15% week-on-week, and shipments of 251,000 bales, down 16%. Two consecutive weeks of decline indicate that overseas buyers are slowing purchases amid a strong dollar and volatile cotton prices.
From China's perspective, the world's largest cotton consumer, the domestic-import price spread is persistently inverted, narrowing the cost advantage of imported cotton. Chinese mills prefer using relatively stable domestic cotton and cost-competitive man-made fibers, maintaining a just-in-time purchasing strategy for US cotton.
Weather: A Double-Edged Sword
Kansas analyst Sid Love noted that before June 30, major US cotton areas received significant rainfall after drought, making the new crop outlook clearer. Weather provides short-term support, as excessive rain could affect quality and yield. But moderate, well-distributed rain could boost production expectations, pressuring prices in the medium term.
For downstream buyers, this is a delicate decision window. On one hand, cotton prices have fallen from May highs and look attractive. On the other, a strong dollar and polyester substitution threats mean prices may not have bottomed. The market awaits official USDA data for clearer direction.
Industry Impact and Transmission
Falling cotton prices affect different players differently.
- For farmers and ginners, spot prices are weakening alongside futures. The Cotlook A index fell 75 points to 87.55 cents per pound on June 24, signaling fading spot market confidence.
- For textile mills, lower raw material costs are positive, but if cotton prices continue to fall, downstream apparel brands may demand lower yarn and fabric prices, limiting margin expansion.
- For polyester producers, the oil price collapse and cotton decline further enhance polyester's price advantage. The substitution ratio of staple fiber for cotton may rise from the current 30%.