In June, the global cotton market seesawed between tightening supply-demand fundamentals and bearish macroeconomic factors. On one hand, the projected global production deficit for the new season has reached 1.24 million tons, the highest in five years; on the other hand, easing drought in major US cotton areas, rising expectations of Fed rate hikes, and weakening domestic textile demand have capped price rebounds. As of June 29, the ICE cotton futures main contract settled at 76.45 cents per pound, down 3.9% from the previous month, while the domestic Zhengzhou cotton main contract closed at 15,890 yuan per ton, a decrease of 1.4%. The domestic-foreign price spread widened further to 3,473 yuan per ton, reflecting a significantly larger decline in external markets.
Supply Side: Tight Global Inventories, Divergent Regional Weather
On the supply side, global spot cotton resources are already very limited. Data shows that the export progress of the 2025/26 US cotton has reached 83%, Brazilian cotton 92%, and Australian cotton 77%, indicating a rapid tightening of available spot supplies. The latest USDA forecast indicates that global cotton production for 2026/27 is expected to be 25.27 million tons, down 1.44 million tons year-on-year, while consumption is projected to grow by 360,000 tons to 26.51 million tons, resulting in a production deficit of 1.24 million tons, the largest in five years.
Planting and growth conditions across major northern hemisphere producing countries show significant divergence. US cotton planting is nearly complete, with good-to-excellent ratings slightly better than last year. Indian cotton sowing is accelerating, and due to lower rainfall forecasts, farmers are leaning towards drought-resistant crops; the Cotton Association of India expects planting area to increase by 15% year-on-year. Brazilian cotton harvesting has begun, with a harvest rate of 1.7% as of June 12, slightly slower than last year. Australian cotton is in the late processing stage, with yield and quality expected to be higher than previous estimates. This regional variation means weather disruptions will remain a core variable for market speculation.
Demand Side: Clear Off-Season Characteristics, Recovery Still Distant
In contrast to the tight supply, domestic textile consumption has continued to weaken, with clear off-season characteristics. According to a recent survey by the National Cotton Market Monitoring System, as of early June 2026, national textile mill industrial inventory stood at approximately 880,000 tons, down 4.0% month-on-month, declining for three consecutive months. Meanwhile, 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, both indicators declining for two consecutive months.
Seasonal patterns suggest this demand weakness is normal, with textile production and sales typically recovering around August. However, the decline in new orders and accumulation of finished goods inventories mean that the upside for cotton prices will be significantly capped in the short term. For buyers, now is not the time to chase prices; they should wait for clear signals of a demand recovery.
Macro and Climate: Dual Uncertainties Amplifying Volatility
On the macro front, the Fed's June meeting kept rates unchanged but shifted to a hawkish stance, simultaneously announcing a reform of its monetary policy framework, removing forward guidance and downplaying dot plot signals. This means future policy will be more data-dependent and prone to frequent shifts, increasing volatility and uncertainty in global capital markets, and consequently raising the risk of cotton price fluctuations.
Meanwhile, easing US-Iran tensions pushed ICE Brent crude oil from $115 per barrel in early June down to $74 per barrel on June 29, within the historical average range. Given the correlation between cotton and crude oil prices, the decline in oil prices has somewhat weakened the cost support for cotton.
On the climate front, a new moderate-to-strong El Niño event began in May 2026 and is expected to last until early 2027, covering the critical growth period for northern hemisphere cotton. For India, monsoon rainfall from June to September is only 90% of the long-term average, and with about 70% of cotton fields relying on rain, the risk of drought-induced production losses is rising. In the US, drought conditions have eased, but the southwestern region is expected to remain dry. Overall, weather risks will persist over the next 2-3 months. Any sudden weather disturbance could easily trigger speculative activity, raising market volatility.