Cotton futures are facing renewed selling pressure, with contracts declining across the board as a firmer US dollar and weaker crude oil prices create a less supportive macroeconomic backdrop.

The physical market is showing a mixed picture. US cash activity remains active, the Cotlook A Index has strengthened, and ICE certified stocks have fallen further. However, the futures market continues to face resistance as traders balance physical-market tightness against broader demand and currency considerations.

Market Snapshot

Cotton Price Action

Cotton futures are under pressure, with October and December contracts both falling 118 points, while March declined 105 points.

December cotton around 80.03 cents per pound remains the key nearby benchmark. The market’s inability to hold recent gains indicates that traders remain cautious despite supportive signals from physical cotton markets.

The forward curve continues to price higher levels into 2027, with March cotton at 83.12 cents, suggesting that the market still anticipates tighter or more constructive conditions further along the supply chain.

Physical Cotton Market

Physical-market indicators are providing some offset to the weakness in futures.

The Seam reported sales of 3,951 bales at an average price of 82.22 cents per pound, demonstrating continued commercial activity in the cash market.

The Cotlook A Index also recovered to 91.45 cents, indicating that international physical cotton values remain considerably stronger than nearby US futures.

This divergence between physical prices and futures will be important to monitor. If physical demand remains firm, it could eventually provide support for futures.

ICE Certified Stocks

ICE certified cotton inventories declined by another 4,435 bales, leaving certified stocks at just 17,756 bales.

The continued reduction in certified stocks is a constructive factor for the futures market. Although certified inventories represent only one component of the wider cotton balance, low exchange stocks can increase sensitivity to delivery concerns and nearby supply availability.

If certified stocks continue to decline, this could provide an underlying floor for futures prices.

Adjusted World Price

The Adjusted World Price is currently around 65.16 cents per pound, following a decline of 93 points in the latest weekly adjustment.

The AWP remains an important measure of US cotton’s competitiveness in the global market. Changes in the AWP can influence producer marketing decisions and the relative attractiveness of US cotton to international buyers.

Dollar and Crude Oil

The broader macroeconomic environment is currently less supportive.

The US dollar index strengthened by approximately 0.440, making US cotton relatively more expensive for international buyers when measured in local currencies.

Crude oil also declined by around 50 cents per barrel.

Energy prices matter to cotton because they influence synthetic-fiber economics, particularly polyester, as well as broader manufacturing and consumer-demand conditions.

A stronger dollar combined with softer crude oil therefore creates a headwind for cotton demand.

Bullish Scenario

Cotton could strengthen if:

• ICE certified stocks continue to decline.
• Physical cotton prices remain firm.
• The Cotlook A Index continues to rise.
• Export demand improves.
• The US dollar weakens.
• Crude oil prices recover.
• Global textile demand improves.

A sustained divergence between tight certified stocks and weaker futures could eventually encourage buyers to return to the futures market.

Bearish Scenario

Downside risks remain if:

• The US dollar continues to strengthen.
• Crude oil prices remain weak.
• Global textile demand remains subdued.
• US export demand fails to improve.
• Futures continue to trade below key technical resistance.
• Larger available supplies offset the decline in certified stocks.

A sustained break below the $0.80 area in December cotton would be technically negative and could encourage additional liquidation.

Price Outlook

The cotton outlook is currently neutral to moderately bearish in the near term, although physical-market indicators are more constructive than futures prices suggest.

December cotton at 80.03 cents is an important psychological level. Holding this area could allow the market to stabilize and potentially challenge higher resistance.

A sustained move back above recent highs would strengthen the technical picture, particularly if accompanied by further declines in ICE certified stocks and stronger physical prices.

Conversely, a decisive break below $0.80 would increase the risk of another leg lower.

Supply Outlook

The decline in ICE certified stocks provides evidence of tighter deliverable availability, but the wider global supply balance remains the more important medium-term consideration.

The market will need to determine whether declining certified stocks represent a temporary logistical feature or a broader tightening of available cotton.

Demand Outlook

Demand remains the critical question.

The stronger Cotlook A Index and active US cash-market sales are encouraging, but futures have yet to respond positively. A stronger US export programme would be needed to confirm that international buyers are willing to absorb cotton at current price levels.

Currency movements will also remain important. A weaker dollar would improve US export competitiveness, while continued dollar strength could limit demand.

Louis Roche Analysis

Cotton is currently showing an interesting divergence between physical-market strength and futures-market weakness.

The decline in ICE certified stocks to just 17,756 bales is clearly constructive, while the Cotlook A Index at 91.45 cents and cash sales around 82.22 cents indicate that physical values remain firm.

Yet futures are struggling because the broader macro environment is working against the market. A stronger US dollar reduces export competitiveness, while lower crude oil prices weaken the relative economics of cotton against synthetic alternatives.

My view is that 80 cents in December cotton is the key near-term dividing line. If the market holds that level while certified stocks continue to decline and physical prices remain firm, the downside may be limited.

However, without stronger export demand or a weaker dollar, the futures market may struggle to convert physical-market strength into a sustained rally.

Coming Sessions

Traders will focus on:

• US cotton export demand.
• ICE certified-stock movements.
• Cotlook A Index developments.
• US dollar direction.
• Crude oil prices.
• Global textile demand.
• Physical-market sales and producer selling.
• December cotton’s ability to hold the 80-cent area.
• The relationship between futures and international physical prices.

Today Markets View

Cotton futures remain under pressure, but the physical market is considerably more constructive.

Low ICE certified stocks, stronger Cotlook A values and active cash-market transactions suggest that underlying physical availability is tightening. The main obstacles are the stronger US dollar, weaker crude oil and uncertainty surrounding global textile demand.

The market is therefore approaching an important technical and fundamental test. Holding the 80-cent area could allow cotton to stabilize, while a sustained break below it would increase downside risk.

Currency Hedger View

Currency movements are particularly important for cotton because the US dollar directly affects the competitiveness of US exports and the purchasing power of overseas textile buyers.

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Contributor: Louis Roche – Today Markets

Disclaimer: Market analysis prepared for Today Markets. For informational purposes only and not intended as investment, trading, financial or commodity advice.