At 87.77 cents per pound, the ICE July cotton contract hit its highest level since April 2024 on May 11, marking a two-year high. The single-day gain of 3.59% appears sentiment-driven, but two clear transmission chains are at work: one tied to improved expectations for US agricultural export demand, and another linking geopolitical tensions in the Strait of Hormuz to polyester costs via crude oil prices, thereby boosting cotton's competitiveness.
Futures and Fund Flows: Net Long Positions Hit a New High
The May 11 settlement price of 87.77 cents represented a $3.04 increase from the previous session, breaking out of the range-bound trading that had characterized the market since mid-April. CFTC data as of May 5 showed speculative net long positions in ICE cotton futures and options jumped by 12,977 contracts to 79,676 contracts. The rapid accumulation of long positions suggests a strong consensus on further upside.
However, the lag in CFTC data means positions may have expanded further by May 11. Should sentiment reverse, the risk of a concentrated liquidation is non-trivial.
Crude Oil and Substitution: Polyester Cost Support
The most direct catalyst came from crude oil, which rose nearly 3% on May 11 after President Trump described the ceasefire with Iran as "fragile" and the Strait of Hormuz remained effectively closed. This geopolitical premium feeds directly into textile costs: polyester staple fiber, a key cotton substitute, has a raw material (PTA) closely linked to oil. A 10% rise in oil prices increases polyester production costs by an estimated 5-7%, eroding its price advantage over cotton.
For textile buyers, the cotton-polyester price spread has narrowed from about 2,000 yuan per ton at the start of the year to below 1,500 yuan. If oil remains elevated, this trend will continue, encouraging mills to increase cotton blending ratios.
Fundamentals: Planting Normal, USDA Report in Focus
On the supply side, the USDA's weekly crop progress report showed US cotton planting at 29% as of May 10, ahead of last year's 27% and the five-year average of 28%. No extreme weather disruptions have been observed, so the current futures price does not include a weather premium.
The market's real focus is the USDA World Agricultural Supply and Demand Estimates (WASDE) report due May 13. This will be the first official balance sheet for the 2026/27 season based on planting intentions. If the report lowers US export estimates or raises global ending stocks, the current high speculative long positions could trigger a sharp sell-off.
On the spot side, the Cotlook A Index stood at 94.65 cents per pound on May 11, up 185 points. The spot-futures spread of about 7 cents is within a reasonable range, indicating spot market support.