ICE cotton futures for December hit a two-week low of 76.09 cents per pound on June 25 before staging a sharp rebound, closing up 0.93% at 76.97 cents. The recovery was fueled by a weakening U.S. dollar, bargain buying, and a surge in oil prices triggered by Middle East shipping disruptions.
Macro and Geopolitical Support
The dollar index ended a three-day winning streak after softer-than-expected U.S. inflation data dampened expectations of further Fed rate hikes. A weaker dollar makes dollar-denominated cotton cheaper for overseas buyers, providing a tailwind for prices.
Meanwhile, oil prices rose over 2% after a cargo vessel was hit by an unidentified projectile near Oman, renewing concerns about shipping safety in the Strait of Hormuz. Higher oil prices lift the cost of polyester—a key substitute for cotton—making natural fiber more competitive.
Mixed Export Signals
The USDA's weekly export sales report painted a nuanced picture. For the week ending June 18, net sales of upland cotton totaled 151,000 bales, but current-year sales of 83,864 bales plunged 53% from the prior week and 61% from the four-week average. Shipments reached 300,155 bales, up 20% week-over-week but still below the seasonal average.
Notably, shipments to China—the world's largest cotton importer—amounted to just 12,248 bales. The lack of aggressive Chinese buying continues to cap any significant upside, as mills there remain cautious amid weak downstream demand.
Technical and Fund Dynamics
StoneX's Bailey McHenry attributed the bounce to technical positioning after the previous day's sell-off. "Speculative funds stepped in to cover shorts and initiate new longs at the 76-cent support level," he said. However, the net speculative position remains short, suggesting the market has not yet turned structurally bullish.
Industry Implications and Recommendations
For textile mills and traders, the current price range offers opportunities but also risks. The market is caught between macro uncertainty and geopolitical shocks.