ICE cotton futures for December settled at 76.45 cents per pound on June 29, up just 0.07 cents, as the market was actually waiting for a more critical data point: the USDA acreage report due June 30.
Short-term support from external factors, but fundamentals remain under pressure
The day's modest gain was driven by two external factors. First, oil prices rose after US-Iran attacks, lifting the cost of polyester fiber, a substitute for cotton. Second, the US dollar weakened for a third consecutive session, making dollar-denominated commodities cheaper for non-US buyers. However, these are temporary boosts rather than improvements in cotton's own supply-demand balance.
From a fundamental perspective, cotton prices still face headwinds. Declines in Chicago grain futures suggest weak overall agricultural demand expectations, and a heatwave forecast for the US Midwest has weighed on grain markets. While cotton is not directly affected by the heatwave, the bearish sentiment in broader agricultural markets can spill over through fund allocation.
US cotton good-to-excellent rate drops sharply; acreage becomes key variable
The data that truly has the market on edge comes from the USDA's weekly crop progress report: as of the week ending June 28, the good-to-excellent rate for US cotton fell to 48% from 53% the previous week, compared to 51% a year ago. A rate of 48% means more than half of the cotton acreage is rated 'fair' or below, a relatively low signal early in the growing season. Planting progress stands at 97%, nearing completion and slightly above last year's 95%.
The deterioration in the good-to-excellent rate could trigger concerns about yield, but the more critical variable remains the upcoming acreage report. Market consensus expects a modest increase in planted acreage, but the magnitude is limited. If the final acreage exceeds expectations, it would reinforce expectations of ample supply and weigh on prices. Conversely, if acreage comes in flat or declines, combined with the lower quality rating, it could trigger an emotional rally.
Speculative longs increase, but high inventory caps upside
CFTC data shows that as of June 23, speculative net long positions in ICE cotton increased by 7,247 contracts to 58,252. This suggests some funds are bullish, but the absolute level is not extreme, indicating significant market divergence. Meanwhile, ICE deliverable stocks of No. 2 cotton futures stood at 185,034 bales, a relatively high level that limits the potential for a short squeeze.
On the supply side, forecaster Vaisala estimates global cotton production for 2026/2027 at 119.27 million bales, still a high number. If the USDA acreage report confirms an increase in planted area, combined with the current decline in quality ratings but still-adjustable yields, the market may experience a period of 'expectation game' volatility.