In June, domestic and international cotton prices experienced a typical 'decline, rebound, then fall again' pattern, but overall still recorded losses. The ICE cotton futures main contract settled at 76.45 cents per pound, down 3.9% from the end of May; the Zhengzhou cotton main contract settled at 15,890 yuan per ton, down 1.4%. The domestic-international price spread widened from 3,052 yuan to 3,473 yuan per ton, further narrowing the cost advantage of imported cotton. The market is repeatedly tug-of-warring between tight supply-demand and macro pressures, with the short-term direction still unclear.
Fundamentals: Tight Pattern Unchanged, But Variables Increase
Globally, tight supply in the current season is a fait accompli. US cotton export progress reached 83%, Brazil 92%, and Australia 77%, limiting available spot resources in the international market. The USDA June forecast shows 2026/27 global cotton production at 25.27 million tons, down 1.44 million tons year-on-year; consumption at 26.51 million tons, up 360,000 tons; and a deficit of 1.24 million tons, the highest in five years. This implies further intensification of supply-demand contradictions next season, providing floor support for forward prices.
Domestically, commercial inventory at end-May stood at 3.75 million tons, up 290,000 tons year-on-year, sufficient to cover demand before new crop arrivals, but quality structural shortages persist. The first 2026/27 balance sheet from the National Cotton Market Monitoring System shows production and imports expected to decline year-on-year, while consumption and exports increase, lowering the inventory-to-consumption ratio and tightening supply-demand.
Northern hemisphere cotton has entered the critical growth period, making weather the core short-term market focus. A new moderate-to-strong El Niño launched in May 2026 is expected to persist into early 2027, covering the key growth phase. India's June-September monsoon rainfall is only 90% of the long-term average, with about 70% of cotton fields rain-fed, raising drought risk. The US Southwest (about 40% of output) is expected to see persistent drought, while the Southeast and South-Central regions have adequate rainfall. Overall, weather risk remains for the next 2-3 months, and sudden disturbances could easily trigger speculative rallies.
Downstream Demand: Seasonal Weakness Caps Upside
In contrast to tight supply, domestic textile consumption has weakened. Early-June survey data shows mill industrial inventory at about 880,000 tons, down 4% month-on-month, declining for three consecutive months; operating rate at 82%, yarn sales ratio at 94%, down 6.8 and 8.3 percentage points respectively, both declining for two consecutive months. Order intake is falling, finished goods inventory is accumulating, and seasonal weakness has emerged.
Historical patterns suggest textile production and sales typically recover around August. Until then, cotton prices may be dragged down by weak demand. However, if extreme weather in July-August sharply reduces supply expectations, cotton prices could decouple from demand and rally independently. Such 'supply-driven' rallies have occurred multiple times in past seasons, and buyers and traders should prepare contingency plans.
Macro Environment: Falling Oil and Fed Policy Shift Add Volatility
Macro factors are equally important. Progress in US-Iran talks pulled ICE Brent crude from $115/barrel in early June to $74/barrel, within the historical average range. Cotton and crude have a long-term correlation; lower oil prices weigh on cotton costs, but given unresolved US-Iran differences, oil could rebound, maintaining floor support for cotton.
The Fed's June meeting held rates steady but shifted to a hawkish stance, introducing monetary policy framework reforms that remove forward guidance and make policy more data-dependent. This means policy could frequently switch with data, increasing global capital market volatility. For cotton, macro sentiment disturbances combined with mixed fundamentals will likely raise price volatility.