The cotton market in June was like a tug-of-war with no clear winner. On one side, strong expectations of tightening global supply; on the other, weak textile consumption, compounded by macro-level disruptions from Fed policy shifts and easing geopolitical tensions. As a result, domestic and international cotton prices ended the month with a weak and volatile performance. As of June 29, the ICE cotton futures main contract settled at 76.45 cents per pound, down 3.9% month-on-month; the Zhengzhou cotton futures main contract closed at 15,890 yuan per ton, down 1.4%. The domestic-international price spread widened from 3,052 yuan at the beginning of the month to 3,473 yuan, reflecting a growing divergence in market views on demand prospects.
Fundamentals: The 'Known Card' of Tight Supply and the 'Hidden Card' of Weather
From a global supply-demand perspective, tight supply is the most certain 'known card' in the current market. The export progress for the 2025/26 season has reached 83% for US cotton, 92% for Brazilian cotton, and 77% for Australian cotton, leaving limited spot resources available in the international market. The latest USDA forecast shows that global cotton production for the 2026/27 season is expected to be 25.27 million tons, down 1.44 million tons year-on-year, while consumption is expected to reach 26.51 million tons, up 360,000 tons. The production deficit of 1.24 million tons is the highest in the past five years. This means that even without an unexpected surge in demand, supply-side pressure will persist.
However, more noteworthy than the 'known card' is the 'hidden card' of weather. The new moderate-to-strong El Niño event that began in May 2026 coincides with the critical growth period for northern hemisphere cotton. June-September monsoon rainfall in India is only 90% of the long-term average, and since about 70% of the country's cotton fields rely on rainwater, the risk of drought-related production losses is significant. In the US, the southwestern region (accounting for about 40% of production) is expected to face continued drought, while the southeastern and central regions are relatively optimistic. This regional divergence means that any extreme weather event in the next two to three months could become a trigger for market speculation, increasing price volatility.
Demand Side: The 'Blunt Knife' Effect of the Seasonal Slow Season
In contrast to the tight supply expectations, downstream textile consumption is experiencing a seasonal cooling. According to the latest industry survey, national textile mill industrial inventories stood at about 880,000 tons in early June, down 4% month-on-month, marking a third consecutive monthly decline. The industry operating rate and yarn production-sales ratio were 82% and 94%, respectively, down 6.8 and 8.3 percentage points month-on-month, with both indicators declining for two consecutive months. Declining orders and rising finished goods inventories are common challenges facing textile mills.
Historically, June and July are typically the slow season for textile consumption, with production and sales usually not picking up until around August. This means that for the next month or so, the demand side will struggle to provide effective support for cotton prices. However, it is worth noting that this weakness is seasonal in nature and does not signify a trend deterioration. Once the autumn/winter order preparation period begins, a marginal improvement in demand could reignite bullish sentiment in the market.
Macro Environment: The 'Dual Variable' Disturbance of Oil Prices and the Fed
On the macro front, two variables warrant continuous tracking. The first is crude oil prices. With progress in US-Iran talks, ICE Brent crude fell from $115 per barrel in early June to $74 per barrel at the end of the month, returning to its historical median range. Cotton and crude oil share a certain correlation through the substitution effect of chemical fibers, and the drop in oil prices has somewhat suppressed the cost support for cotton. However, differences between the US and Iran have not been fully resolved, and regional tensions could resurface, making the risk of an oil price rebound non-negligible.
The second is Fed policy. The June FOMC meeting kept interest rates unchanged but shifted its tone toward tightening, introducing a monetary policy framework reform that removes forward guidance and makes policy more data-dependent. This means the market will face greater policy uncertainty, and any unexpected employment or inflation data could trigger sharp fluctuations in rate expectations, which would then spill over into commodity markets. For cotton prices, the risk of macro-level volatility is on the rise.