In June, both domestic and international cotton prices fell, but the global cotton supply-demand tight balance did not loosen. According to data from China Customs, as of June 29, the ICE cotton futures main contract settled at 76.45 cents per pound, down 3.9% from the end of last month; while the Zhengzhou Commodity Exchange cotton futures main contract settled at 15,890 yuan per ton, a drop of only 1.4%. The domestic-foreign price spread expanded from 3,052 yuan per ton to 3,473 yuan per ton, reflecting the relatively resilient domestic market and further narrowing the price advantage of imported cotton.
Fundamentals: Tight Balance Unchanged
The global cotton production deficit for 2026/27 is a foregone conclusion. The latest USDA forecast shows global cotton production is expected to be 25.27 million tons, down 1.44 million tons year-on-year, while consumption is expected to increase by 360,000 tons to 26.51 million tons, resulting in a production-consumption gap of 1.24 million tons, the highest in five years. Spot supply is also tight this year: US cotton export progress has reached 83%, Brazilian cotton 92%, and Australian cotton 77%, limiting available resources in the international market.
Domestically, commercial inventory stood at 3.75 million tons at the end of May, up 290,000 tons year-on-year. Overall supply can cover demand before the new crop arrives, but the issue of quality structural shortages remains prominent. The first supply-demand balance sheet for 2026/27 compiled by the National Cotton Market Monitoring System shows that domestic cotton production and imports are expected to decrease year-on-year, while consumption and exports are expected to increase. The ending inventory-to-consumption ratio will decline, further tightening the supply-demand relationship.
Weather and Macroeconomics: Dual Risks Overlap
The northern hemisphere cotton is in a critical growth period, and weather disruption risks cannot be ignored. A new moderate-to-strong El Niño event started in May 2026 and is expected to last until early 2027. India's June-September monsoon rainfall is only 90% of the long-term average, and about 70% of cotton fields rely on rainwater for irrigation, increasing the risk of drought and reduced production. The southwestern US (accounting for about 40% of production) is expected to experience persistent drought, while the southeastern and south-central regions have sufficient rainfall. Weather premiums still exist, and any sudden disturbance could easily trigger speculative activity.
On the macro front, the Fed's June meeting kept the benchmark interest rate unchanged but shifted its monetary policy stance toward tightening and introduced a framework reform plan. Future policy will rely more on real-time data, meaning policy positions may switch frequently, amplifying global capital market volatility. At the same time, the easing of the US-Iran situation pushed Brent crude oil from $115 per barrel down to $74 per barrel, within the historical average range, but geopolitical risks are not completely eliminated, and oil prices could rebound. Cotton and crude oil prices have a certain correlation, and the current oil price level provides bottom support for cotton prices.
Downstream Consumption: Seasonal Weakness Caps Upside
Domestic textile consumption continued to weaken in June, with seasonal off-season characteristics becoming apparent. A survey by the National Cotton Market Monitoring System showed that at the beginning of June, the national textile mill industrial inventory was about 880,000 tons, down 4.0% month-on-month, declining for three consecutive months; the industry operating rate was 82%, and the yarn production-sales rate was 94%, down 6.8 and 8.3 percentage points month-on-month, respectively, with both indicators declining for two consecutive months. Order intake fell, and finished product inventories accumulated.
Historical patterns suggest that textile production and sales typically pick up around August. Before that, cotton prices may be dragged down by weak demand. However, it is important to clarify that the current demand weakness is seasonal, not a trend reversal. Once the traditional peak season arrives, downstream restocking demand is expected to be released, supporting cotton prices.