At 76.09 cents per pound, the ICE cotton December contract hit a two-week low during intraday trading on June 25. But within hours, the market reversed, settling at 76.97 cents, a daily gain of 0.93%. The rebound was fueled by a weaker U.S. dollar, bargain buying, and a 2% surge in oil prices. Yet the same week's export sales report painted a different picture. The tug-of-war between short-term sentiment and medium-term demand is now the dominant theme.
Currency and Geopolitics: Temporary Pillars
The U.S. dollar index ended a three-day winning streak on Thursday after a series of economic data dampened expectations of a Fed rate hike this year. A weaker dollar makes dollar-denominated cotton cheaper for overseas buyers, theoretically supporting demand.
Geopolitical risks in the Middle East flared up again. A cargo vessel was hit by an unknown projectile off Oman, prompting the International Maritime Organization to suspend evacuation operations in the Strait of Hormuz. This pushed oil prices up more than 2%. The logic is straightforward: higher oil prices raise polyester costs, making natural cotton more competitive on substitution.
However, this support is more about sentiment than substance. U.S. cotton export sales did not show a spike despite the weaker dollar, indicating that buying was largely speculative repositioning rather than genuine mill restocking.
Export Data: A Contradictory Signal
The USDA's weekly export sales report released the same day told a mixed story. For the week ending June 18, net sales of upland cotton for the current marketing year were 83,864 running bales, down 53% from the previous week and 61% below the four-week average. New crop sales added 67,089 bales, bringing the combined total to around 150,953 bales.
A telling detail: export shipments reached 300,155 bales, up 20% week-over-week, but shipments to China were only 12,248 bales. China, the world's top cotton importer, has slowed its purchasing pace, suggesting downstream demand has not yet recovered. The increase in shipments likely reflects fulfillment of earlier orders rather than fresh demand.
From an industrial cluster perspective, mills in China's Xinjiang, Shandong, and Henan provinces are buying only on a hand-to-mouth basis, keeping raw material inventories low. If U.S. export sales continue to weaken, ICE cotton will face real downward pressure.
Industry Impact: Volatility Narrows Procurement Windows
The rapid price swings are creating challenges across the supply chain. For spinners, whether the 76-77 cent level is a bottom remains uncertain. StoneX analysts noted strong technical support at current levels, but speculative money can exit just as quickly as it entered.
The Cotlook A Index fell 250 points to 85.05 cents per pound on June 25, indicating that spot markets are not following futures higher. This widening basis reduces hedging efficiency for traders.
For exporters, the dollar's direction remains the key variable over the next few weeks. If Fed rate cut expectations re-emerge, the dollar could weaken further, providing more durable support for cotton. But if Middle East tensions ease and oil retreats, prices will revert to fundamentals—and those fundamentals hinge on real demand.