The cotton market is undergoing a rapid cooldown driven by a combination of improved weather and falling energy prices. On June 26, the ICE December cotton futures contract settled at 76.38 cents per pound, down 0.59 cents for the session and hitting an intraday low of 75.50 cents—the weakest level since June 11. More strikingly, the contract posted a weekly loss of 3.29 cents, or 4.13%.
Weather Improvement: Supply Expectations Shift from Tight to Ample
The most direct catalyst for this decline is the significant improvement in weather conditions across major producing regions. According to the latest USDA drought monitor data, approximately 58% of US cotton areas were affected by drought as of the week ending June 23, a sharp drop of 18 percentage points from 76% the previous week. This suggests that earlier market concerns about US cotton production losses are rapidly fading, with ample rainfall in May and June providing strong support for crop development.
In India, although the monsoon arrived slightly late, it has now covered the main cotton-growing regions. As one of the world's largest cotton producers, India's monsoon progress has a decisive impact on global supply dynamics. The arrival of the monsoon means that India's new-season cotton output is likely to remain normal, further easing market anxiety about supply tightness.
Falling Oil Prices: Polyester Substitution Weighs on Cotton
External markets are also adding pressure. On June 26, international oil prices fell more than 3%, posting a significant weekly decline. Although an attack on an oil tanker in the Gulf of Oman had briefly sparked supply concerns, sentiment quickly eased as tankers resumed sailing through the Strait of Hormuz. The drop in oil prices directly lowers the production cost of polyester fiber—polyester is the main substitute for cotton in textile raw materials, and its price weakness indirectly dampens cotton demand.
This transmission mechanism is currently at work in cotton pricing. When synthetic fiber costs decline, downstream spinners tend to adjust their cotton blending ratios, reducing cotton usage and putting downward pressure on spot cotton prices. Historically, there is often a positive correlation between oil and cotton prices, especially when energy costs significantly impact chemical fiber prices.
Grain Markets and Macro Sentiment: Awaiting Key Data Release
In the broader agricultural complex, corn and soybeans retreated due to expanding high-temperature zones in the US Midwest, while wheat weakened under supply pressure from advancing harvests. The overall bearish tone in grain markets has added to the negative sentiment surrounding cotton. Investors are now closely watching the USDA's annual planted acreage report and quarterly stocks report, scheduled for release on June 30 (midnight Beijing time on July 1).
Market expectations for the report lean bearish. According to a survey of analysts, US corn stocks as of June 1 are estimated at 5.408 billion bushels, up 16.5% year-on-year and the highest for that date since 1988. Although this data pertains to corn, it reflects the overall ample inventory tone across US agricultural commodities, and cotton stocks could also face upward revision pressure.
On the positioning front, ICE deliverable stocks of No. 2 cotton futures fell to 187,250 bales as of June 25, down from 189,447 bales the previous day. While declining stocks are often interpreted as a sign of adequate spot demand, in the current price downtrend, this signal more likely reflects market concern about future supply rather than robust short-term demand.
Spot Market: Index Edges Up but Cannot Reverse Expectations
On the spot side, the Cotlook A index closed at 85.80 cents per pound on June 26, up 75 points from the previous day. The slight uptick in the spot index, diverging from the futures decline, suggests that some essential demand still exists in the physical market. However, overall, with futures prices continuing to weaken, it will be difficult for spot prices to maintain an independent trajectory for long.
For the textile supply chain, the current decline in cotton prices means lower procurement costs for downstream buyers. But buyers should note that this decline is driven more by improved supply expectations than by a fundamental improvement in demand. If the upcoming USDA report confirms acreage above expectations, cotton prices could have further room to fall.