Cotton futures saw a short-term boost on July 15, with the ICE December contract settling at 81.55 cents per pound, up 0.68 cents or 0.84% from the previous session. The rally was driven not by cotton's own fundamentals but by external markets—a strong grain rally and a weaker US dollar created a resonance effect.
External Drivers: Grain and Dollar Dynamics
Chicago wheat futures surged over 5%, and European wheat hit a one-year high as shipping attacks in the Sea of Azov—a key export route for Russian wheat—escalated. The bullish sentiment in grains spilled over into cotton, as capital tends to synchronize long positions across agricultural commodities. The US dollar index fell to 100.36, its lowest since mid-June, after US June PPI unexpectedly dropped 0.3% month-on-month, contrasting with market expectations of flat growth. This reinforced signs of easing inflation, leading markets to believe the Fed can remain patient on interest rates, thereby weakening the dollar. For dollar-denominated cotton, a weaker dollar means lower actual costs for overseas buyers, providing implicit support for export demand.
Cost Side: Oil Rally Indirectly Favors Cotton
Oil prices extended gains as the US launched new strikes on Iranian military facilities, threatening merchant shipping in the Strait of Hormuz. Higher oil prices directly raise the production cost of polyester, cotton's main competitor in textile raw materials. When chemical fiber costs rise, cotton's relative price competitiveness improves, potentially shifting downstream procurement decisions. The TexCircle editorial team observes that the price gap between chemical fibers and cotton is narrowing, prompting some mills to adjust blend ratios.
Weather Variable: Yield Uncertainty Persists
Market attention is shifting to weather conditions in major US cotton regions. While the USDA's daily weather report noted persistent high temperatures in the Great Plains (Montana and the Dakotas), the impact on cotton yields remains unclear. Industry sources note that crop development in the first half of the growing season was satisfactory, but the second half will determine final yields. At this stage, it is difficult to predict output, making current prices around 81 cents per pound a reasonable valuation range. ICE deliverable cotton stocks fell from 121,285 bales on July 14 to 100,612 bales, a drop of about 17%, easing delivery pressure and providing short-term support for nearby contracts.