Global cotton prices set to stay firm through H2 2026

July 20, 2026 (MLN): Cotton prices are expected to remain firm through the second half of 2026, driven by a tightening global supply outlook, with the market's focus increasingly shifting toward the Southern Hemisphere crop cycle where weather risks are building, particularly in Australia, according to a report by BMI, a Fitch Solutions company.

The 2026 annual average forecast for ICE-listed second-month cotton futures has been revised upward from USc71.4/lb to USc77.0/lb, representing a 15.3% increase compared to the 2025 annual average of USc66.8/lb.

Prices are projected to reach USc80.3/lb in Q3 2026 and USc82.5/lb in Q4 2026.

Since mid-May, cotton prices have lost some support from the energy market, tracking the broader decline in oil prices.

However, the relatively limited pull-back in cotton prices, down 10.1% between May 11 and July 9, compared with a 26.8% decline in crude oil prices, suggests supply-side concerns are becoming an increasingly important driver of market sentiment.

Prices have averaged USc72.8/lb year-to-date, up 8.9% from the 2025 annual average.

With much of the 2026/27 crop already well advanced across key Northern Hemisphere producers, including the US, Mainland China and India, production prospects point to softer output.

Global cotton output is forecast to decline by 4.4% y-o-y to 120.4mn bales in 2026/27, as lower production in Mainland China and the US more than offsets modest gains in India.

Mainland China's output is projected to fall 6.4% y-o-y to 33.5mn bales, reflecting lower acreage as policy support for grain production weighs on cotton area expansion.

US output is expected to contract 4.3% y-o-y to 13.3mn bales amid a continued shift toward more profitable crops, including soybeans.

India's output, by contrast, is forecast to rise 1.0% y-o-y on modest acreage expansion and improving demand.

Market sentiment remains bullish, with net long positions at 31,985 contracts as of June 30, though positioning has eased from the 2026 peak of 62,045 contracts recorded on May 19.

Weather-related risks are becoming a key market focus. The US National Oceanic and Atmospheric Administration's Climate Prediction Center declared El Niño conditions present in June 2026 and forecasts further strengthening through H2 2026, assigning a 73% probability of at least a strong event developing between July and September.

Northern Hemisphere producers are expected to be relatively insulated, given limited overlap between weather-sensitive crop stages and the period when El Niño impacts intensify.

Historically, El Niño conditions have been associated with below-average rainfall in Mainland China and South Asia, which could prove favourable for harvesting, while risks in the US stem mainly from wetter-than-normal conditions that may disrupt harvesting without causing significant yield losses.

Australia faces greater downside risk, where El Niño is typically associated with below-average rainfall. According to the Murray-Darling Basin Authority, government storage levels across key cotton-producing regions of New South Wales and Queensland stood at 52.9% as of July 1, 2026, down from 60.4% a year earlier.

USDA forecasts published in June project Australian cotton acreage to decline by 30.9% y-o-y to 325,000 hectares, with expectations of a smaller Australian crop, alongside weather-related risk premia, seen sustaining bullish sentiment through H2 2026.

Global cotton consumption is forecast at 122.4mn bales in 2025/26 and 123.2mn bales in 2026/27, representing growth of 1.9% and 0.7% y-o-y respectively, supported by an expanding global economy despite pressure from a more uncertain macroeconomic and geopolitical backdrop, including developments related to the US-Iran conflict.

The outlook points to a global deficit of 2.8mn bales in 2026/27, compared with a surplus of 3.6mn bales in 2025/26.

However, strong carryover inventories are expected to provide a substantial buffer against supply shocks, limiting scope for the sharp price increases observed in 2021 and 2022. Global ending stocks are estimated at 76.6mn bales in 2025/26, up 2.8% y-o-y, before falling 7.2% y-o-y to 71.1mn bales in 2026/27.

The 2027 price forecast is based on the assumption that shipping flows through the Strait of Hormuz normalise by Q1 2027, allowing fertiliser supply chains to stabilise and oil prices to ease.

Key risks to the outlook include weather developments in Southern Hemisphere producers, a 45% probability assigned to a "Messy Negotiations" scenario for the US-Iran conflict that could push energy and fertiliser costs higher, and demand-side risks from a potential global economic slowdown.

Copyright Mettis Link News