International cotton markets took a heavy hit on June 26, with the ICE December futures contract falling to 75.50 cents per pound, a two-week low, and recording a cumulative weekly decline of 4.13%. This downturn is driven by a dual negative resonance of improved weather in major global cotton-producing regions and falling crude oil prices.
Weather Improves: Supply Expectations Shift from Tight to Loose
Earlier market concerns about a U.S. cotton crop reduction are quickly dissipating. The latest USDA data shows that as of the week ending June 23, approximately 58% of U.S. cotton areas were affected by drought, a sharp 18-percentage-point drop from 76% the previous week. This means May and June rainfall effectively alleviated soil moisture, which is quite favorable for cotton growth.
The arrival of the Indian monsoon has also reversed market sentiment. Although the monsoon was late this year, it has now reached the Indian mainland, supporting India's cotton planting and growth. The weather improvement in the two major producing regions directly boosted expectations of a global cotton production increase, forcing futures prices to correct downward.
For textile enterprises, this means raw material cost pressures may ease temporarily. However, buyers should note that weather factors are highly uncertain. Although drought data is improving, 58% of producing areas remain under drought conditions, and subsequent weather changes could still trigger price volatility.
Oil Plunges: Substitution Effect of Synthetics Emerges
The sharp fluctuation in international oil prices is another key driver of this cotton price decline. On June 26, U.S. crude oil fell 3.7%, with a significant weekly decline, mainly due to oil tankers continuously leaving the Strait of Hormuz, easing supply disruption concerns triggered by a previous ship attack in the Gulf of Oman.
Lower oil prices directly reduce the production cost of polyester fiber. As the main substitute for cotton, cheaper polyester indirectly suppresses cotton demand. As market analysts point out, oil is the world's most important commodity; it affects synthetic fiber prices, thus indirectly bearish for cotton.
This substitution effect is particularly critical in textile raw material procurement decisions. When polyester's price advantage expands, downstream textile mills tend to increase synthetic fiber usage and reduce cotton blending, thereby weakening actual cotton demand. If the current oil price downtrend continues, cotton prices will face sustained pressure.
Key Data Awaited: USDA Report to Set Supply Tone
The market is currently in a highly sensitive period, with investors awaiting the USDA's annual planting area report and quarterly stocks report due June 30. These data will provide key clues on major agricultural product supply estimates.
Analyst surveys show that as of June 1, U.S. corn stocks are expected to increase 16.5% year-on-year, the highest for the same period since 1988. Ample grain stocks may indirectly affect cotton planting decisions, as farmers compare returns among different crops.
Additionally, ICE deliverable cotton stocks continue to decline, falling to 187,250 bales as of June 25, down about 2,200 bales from the previous day. Declining stocks are typically seen as a bullish signal, but under the current dual headwinds of weather and oil prices, this factor has not yet been fully priced by the market.