At 76.09 cents per pound, the ICE cotton futures December contract hit a two-week low on June 25. But the market quickly rebounded, closing at 76.97 cents, up 0.93%. The tug-of-war between short-term selling and bargain buying found a new equilibrium.
Weaker Dollar: A Key Macro Variable
The US dollar index fell after three consecutive days of gains, as lower-than-expected US inflation data weakened expectations of a Fed rate hike this year. A softer dollar makes dollar-denominated cotton cheaper for overseas buyers, a clear positive signal for US cotton exports. Historically, each 1% drop in the dollar index correlates with a 0.5% to 1% rise in ICE cotton prices.
76 Cents: A Recognized Short-Term Floor
When prices hit 76.09 cents, bargain hunters quickly stepped in. StoneX’s Bailey McHenry noted that speculative funds were repositioning after the previous day’s sell-off, and the 76-cent level showed strong support, with buyers willing to enter at that price. This suggests narrowing valuation divergence in the market—mills and traders see 76 cents as near the breakeven point for some orders.
Export Data: Decent Volume but Slowing Momentum
The USDA’s weekly export sales report showed net sales of 83,864 bales for the current marketing year and 67,089 bales for the next, totaling 150,953 bales for the week ending June 18. However, that was down 53% from the prior week and 61% below the four-week average. Shipments of 300,155 bales rose 20% week-over-week, but shipments to China were only 12,248 bales, remaining low. The weakening export data reflects still-fragile global textile demand, with buyers in Southeast Asia and South Asia adopting a cautious pace.
Oil Prices and Indirect Cotton Link
International oil prices rose over 2% on the same day, driven by renewed Middle East tensions after a cargo ship was attacked near Oman, prompting the International Maritime Organization to suspend vessel evacuations in the Strait of Hormuz. Higher oil prices indirectly boost cotton’s competitiveness relative to polyester (PTA-based fibers) through cost pass-through, though the substitution effect is limited in the short term and mainly affects market sentiment.
Industry Impact: Procurement Window and Risks
With ICE cotton oscillating in the 76-78 cent range, domestic mills face a notable procurement window. On one hand, foreign cotton prices have fallen to a three-month low, narrowing the spread with Xinjiang cotton to within 2,000 yuan per ton, making imports more cost-effective. On the other hand, July-August is traditionally a slack season, lacking strong demand support for price increases, while 76 cents forms a solid floor. Mills are advised to adopt a phased pricing strategy, locking in some forward raw material costs in the 76-77 cent range.