The global cotton market in June was caught in a tug-of-war between fundamental support from a five-year-high supply-demand gap and bearish macro headwinds. By June 29, ICE cotton futures settled at 76.45 cents/lb, down 3.9% from the previous month; Zhengzhou cotton futures fell 1.4% to 15,890 yuan/ton. The spread between domestic and international prices widened from 3,052 yuan/ton to 3,473 yuan/ton, reflecting deeper overseas losses.
Supply-Demand: Gap Widens but No Immediate Shortage
The USDA's latest forecast projects 2026/27 global cotton production at 25.27 million tons, down 1.44 million tons year-on-year, while consumption is expected at 26.51 million tons, up 360,000 tons. The production deficit of 1.24 million tons is the highest in five years. This provides long-term price support, but short-term supplies are not critically tight.
Current-season international spot resources are limited: US cotton export progress reached 83%, Brazil 92%, and Australia 77%. Domestically, commercial inventories stood at 3.75 million tons as of end-May, up 290,000 tons year-on-year, enough to cover demand before the new crop, though quality shortages persist. US apparel retail sales in May reached $27.76 billion, up 5.7% year-on-year, indicating moderate demand growth.
Macro: Falling Oil Prices and Rate Hike Expectations
ICE Brent crude fell from $115/barrel to $74/barrel in early June, driven by progress in US-Iran talks. Lower oil prices reduced cotton's petrochemical substitute support. Meanwhile, the Fed's June meeting kept rates unchanged but signaled a hawkish shift, introducing a monetary policy framework reform that removes forward guidance and downplays dot-plot signals. This could lead to frequent policy swings, amplifying volatility in capital markets and cotton prices.
Weather Risks: Key Growing Season Uncertainty
June marks the critical growing period for Northern Hemisphere cotton. US cotton regions saw easing drought, but the Southwest (about 40% of output) faces persistent dryness. India's June-September monsoon rainfall is only 90% of the long-term average, raising drought risks for rain-fed fields. Brazil's harvest is slightly behind last year, while Australia's processing is in late stages with better-than-expected yield and quality.
A moderate-to-strong El Niño began in May 2026 and is expected to persist into early 2027. Historical data shows global cotton yields fell 9.8% in 2015/16 and 1.5% in 2023/24 during similar events. Although this event is weaker, Northern Hemisphere yields remain at risk, with potential speculative rallies if weather disruptions occur.
Downstream: Seasonal Weakness Limits Upside
Domestic textile consumption continues to weaken, with clear off-season characteristics. According to the National Cotton Market Monitoring System, mill inventories stood at 880,000 tons as of early June, down 4.0% month-on-month for three consecutive months. Operating rates fell to 82% and yarn sales-to-production ratio to 94%, both declining for two straight months. Order intake is slowing, and finished goods inventories are rising.
Historically, textile production and sales pick up around August, so current weakness is seasonal. However, until demand improves, cotton price upside will be capped.