In June, domestic and international cotton prices showed a weak and volatile trend. As of June 29, the main ICE cotton futures contract settled at 76.45 cents per pound, down 3.9% from the previous month; the domestic Zhengzhou cotton futures main contract closed at 15,890 yuan per ton, down 1.4%. The domestic-foreign price spread widened to 3,473 yuan per ton, further narrowing the cost advantage of imported cotton. This price trend reflects the interplay of multiple macro and industrial factors.
Global Supply Tightens, But Short-Term Speculation Fades
In early June, eased drought conditions in major US cotton-producing regions, rising expectations of a Fed rate hike, and weakening textile demand jointly pushed cotton prices down. In mid-to-late June, the latest USDA forecast reinforced expectations of a tight global supply-demand balance, coupled with repeated weather speculation in major cotton-producing countries, leading to a price rebound, though it failed to recover early-month levels.
From a global supply-demand perspective, the current year's tight supply is clear. As of May 2026, US cotton export progress reached 83%, Brazilian cotton 92%, and Australian cotton 77%, with limited international spot resources. The USDA forecasts a global cotton production deficit of 1.24 million tons for 2026/27, the highest in five years. This implies a solid floor for cotton prices in the medium to long term.
Northern Hemisphere Growing Season: Weather Risks and Supply Expectations
The northern hemisphere cotton crop has entered a critical growth period, making weather the core market variable. US cotton planting is wrapping up, with good-to-excellent ratings slightly better than last year. Indian cotton planting is accelerating, but June-September monsoon rainfall is only 90% of the long-term average, raising drought risks for about 70% of rain-fed fields. Brazilian cotton harvesting has begun but lags last year's pace. Australian cotton processing is in its late stages, with yield and quality expected to exceed earlier forecasts.
Notably, a new moderate-to-strong El Niño event has started in 2026 and is expected to last until early 2027, covering the critical growth period for northern hemisphere cotton. Although this El Niño is weaker than the 2015/16 and 2023/24 events, weather disruption risks remain. The southwestern US is expected to experience continued drought. Any sudden weather event could easily trigger market speculation and increase price volatility.
Macro Environment: Falling Oil Prices and Policy Shift
On the macro front, progress in US-Iran talks has eased Middle East tensions. ICE Brent crude futures fell from $115 per barrel in early June to $74 per barrel by late June, near historical median levels. Cotton and crude oil prices have a certain correlation, and falling oil prices have weighed on cotton. However, given geopolitical uncertainties, oil prices could rebound, providing underlying support for cotton.
The Fed's June meeting kept rates unchanged but signaled a tightening bias and introduced a monetary policy framework reform, removing forward guidance and downplaying the dot plot. This reform means future policy will rely more on real-time economic data, making policy stances prone to frequent shifts and potentially increasing global capital market volatility, thereby amplifying cotton price risks.
Domestic Textile Off-Season: Weak Demand Caps Upside
Domestic textile consumption has weakened recently, with clear off-season characteristics. According to the latest survey by the National Cotton Market Monitoring System, as of early June 2026, national textile mill industrial inventory stood at about 880,000 tons, down 4.0% month-on-month and declining for three consecutive months. Meanwhile, operating rates and yarn sales-to-production ratios were 82% and 94%, down 6.8 and 8.3 percentage points month-on-month, both declining for two consecutive months.
Historical patterns suggest that textile production and sales typically recover around August. The current demand weakness is clearly seasonal, meaning demand-side support for cotton prices will be limited in the short term. In fact, rising inventories and falling operating rates could drag on prices.
Overall Assessment: Solid Floor, But Volatility Rising
In summary, the current cotton market maintains a tight balance, with no fundamental change in the expectation of tight domestic and international supply. Weather risks during the new crop's critical growth period in the northern hemisphere are a potential speculative theme. Meanwhile, the seasonal weakness in textile consumption is expected to recover around August.
Therefore, cotton prices still have upward momentum, but macro uncertainties must be watched. The US-Iran situation, though easing, remains volatile. Fed policy shifts are disturbing market sentiment, and funds may exploit these factors to speculate, amplifying price volatility. For market participants, the next two to three months will be a critical window, requiring close attention to weather changes and macro policy signals.