June saw a classic tug-of-war in the global cotton market between strong expectations and weak realities. The ICE cotton futures主力 contract settled at 76.45 cents per pound, down 3.9% month-on-month, while Zhengzhou cotton futures fell 1.4% to 15,890 yuan per ton. The domestic-international price spread widened from 3,052 yuan to 3,473 yuan per ton, further narrowing the cost advantage of imported cotton.
Fundamentals: Tight Supply-Demand Unchanged
The expectation of tight global cotton supply is strengthening. The USDA's latest forecast puts 2026/27 global cotton production at 25.27 million tons, down 1.44 million tons year-on-year, while consumption is projected at 26.51 million tons, up 360,000 tons. This implies a supply-demand gap of 1.24 million tons, the highest in five years.
Among major producers, US cotton planting is largely complete with slightly better quality than last year. Brazil's harvest is slow, with only 1.7% collected by June 12. India's sowing is accelerating, but below-average rainfall forecasts have led the Indian Cotton Association to expect a 15% increase in planted area, though substitution with drought-resistant crops is a concern. Australian cotton processing is in its final stages, with yields and quality expected to exceed earlier estimates.
In China, commercial inventories stood at 3.75 million tons at end-May, up 290,000 tons year-on-year, ensuring adequate supply. However, a structural shortage of high-grade cotton persists, with premiums for superior grades rising. The national cotton market monitoring system's June forecast indicates tighter supply-demand for 2025/26, with the next season (2026/27) expected to see declines in both production and imports, while consumption and exports grow modestly, further lowering the stock-to-use ratio.
Demand Side: Seasonal Weakness Weighs on Prices
Contrasting with the tight supply narrative, domestic textile consumption is experiencing seasonal weakness. Mill inventories stood at about 880,000 tons in early June, down 4% month-on-month, marking three consecutive monthly declines. More critically, the mill operating rate fell to 82% and the yarn sales ratio to 94%, down 6.8 and 8.3 percentage points respectively, both declining for two consecutive months.
This pattern aligns with historical norms—June and July are typically the off-season for textiles, with orders slowing and inventories building. Recovery usually begins around August, but the pace this year remains uncertain. On the demand front, US apparel retail sales in May reached $27.76 billion, up 5.7% year-on-year but only 0.2% month-on-month, indicating lackluster overseas consumption momentum.
For cotton prices, demand-side pressure is a short-term drag. However, if orders recover as expected after the off-season, combined with tight supply fundamentals, prices still have upside potential.
Macro and Weather: Multiple Variables Raise Volatility
The macro environment is becoming more complex. The Fed's June meeting held rates steady but signaled a hawkish shift, introducing a new monetary policy framework that removes forward guidance and weakens dot plot signals. This means policy will rely more on real-time data, potentially leading to frequent shifts and amplifying global capital market volatility. For cotton, sentiment-driven price swings are likely.
Meanwhile, progress in US-Iran talks has pushed ICE Brent crude from $115 per barrel in early June to $74, now at historical mid-range. Cotton and crude prices have some correlation, and while lower oil prices have limited drag on cotton, any renewed geopolitical tension could push oil higher, providing a floor for cotton.
Weather risk is a key variable for the next 2-3 months. A moderate-to-strong El Niño event began in May 2026 and is expected to persist into early 2027, covering the critical growing period for Northern Hemisphere cotton. India's June-September monsoon rainfall is only 90% of the long-term average, and with about 70% of cotton fields rain-fed, drought risk is elevated. In the US, the southwestern region (about 40% of production) is expected to remain dry, while the southeastern and south-central regions have adequate moisture. Any weather disturbance could trigger speculative rallies, increasing market volatility.
Conclusion: Range-Bound in a Tight Balance
The core contradiction in today's cotton market is between long-term tight supply expectations and short-term demand weakness. Macro factors—Fed policy shifts and geopolitical uncertainty—amplify price volatility, while El Niño poses a latent threat to Northern Hemisphere yields, opening a window for speculation.
For industry participants, the next 2-3 months will hinge on three key milestones: weather developments in major producing regions during July-August, the pace of domestic textile order recovery around August, and the Fed's September meeting signals. Until these variables become clear, cotton prices are likely to remain range-bound, with no clear trend emerging.