The global cotton market is experiencing a price correction driven by favorable weather and falling energy prices. On June 26, the ICE December cotton futures contract fell 0.77% to 76.38 cents per pound, hitting an intraday low of 75.50 cents per pound, the lowest since June 11. The contract has lost 4.13% this week, reflecting growing expectations of increased supply.
Weather and Supply Expectations
Favorable weather is the core driver of this decline. USDA drought monitoring data shows that as of June 23, the proportion of US cotton-growing areas affected by drought narrowed sharply to 58% from 76% the previous week. This means about 40% of the country's production areas have exited drought conditions, sending a clear signal of potential output growth for the upcoming harvest.
More notably, this improvement is not limited to the US. India's monsoon has arrived, albeit late, and weather conditions in the world's largest cotton producer are also turning favorable. Market analysts note that rainfall in May and June has been generally sufficient, putting downward pressure on prices globally.
Impact of Falling Oil Prices
Lower oil prices are another factor that cannot be ignored. On June 26, US crude oil fell 3.7%, recording a significant weekly decline. Although the resumption of oil tanker traffic through the Strait of Hormuz temporarily eased supply concerns, geopolitical risks remain.
Falling oil prices directly reduce the production cost of polyester fiber, a major substitute for cotton. Lower polyester prices can indirectly divert textile mills' purchasing demand away from cotton. Industry data shows that oil, as the world's most important commodity, has a transmission effect on synthetic fiber pricing, creating an indirect bearish factor for cotton.
Inventories and Market Sentiment
On the inventory front, ICE deliverable stocks of No. 2 cotton futures fell to 187,250 bales, down about 2,197 bales from the previous session, indicating reduced delivery willingness. Meanwhile, the Cotlook A index stood at 85.80 cents per pound, showing a significant premium over futures prices, suggesting spot market resilience.
Externally, a weaker US dollar provides some support for dollar-denominated cotton, but a pullback in grain markets—corn, soybeans, and wheat all fell due to their own fundamentals—weakened overall sentiment in the agricultural sector. Investors are awaiting the USDA's annual acreage and quarterly stocks report due June 30 for clearer supply signals.
Long-Term Perspective: Supply-Demand Game Continues
Despite short-term pressure, the cotton market is not entirely bearish. The upcoming USDA acreage report could bring surprises—if actual acreage falls short of market expectations, it could reignite supply tightness concerns. Additionally, while oil prices have fallen temporarily, geopolitical risks persist; any escalation could quickly rebound to impact cotton substitute costs.
For domestic textile enterprises, the current low-price window may offer phased procurement opportunities, but caution is needed regarding volatility from the acreage report.