ICE cotton: a rebound driven by macroeconomic force

After hitting a low of 65cent/lb at the beginning of this month, ICE cotton futures market has rebounded strongly over the past week, currently rising above 69cent/lb with an increase of about 5.3%. Why is ICE cotton experiencing such a strong rebound despite the ongoing global cotton supply being relatively ample? Not to mention the negative impact of Trump's administration directly imposing high tariffs on various countries. Is this driven by capital or is there genuinely an optimistic shift in cotton demand? It will be analyzed below.

First, the USDA's February global cotton balance sheet has raised questions why ICE cotton still has strong rebound after the USDA raised China's production forecasts, leading to an increase in global production. In fact, Chinese domestic expectations for production have been pushed upward for some time, so the USDA's increase in production in February was largely anticipated by the market, making it a "diminishing benefit" to the data. Additionally, the recent 14.5% decline in the NCC's forecast for the U.S. cotton planting area has somewhat alleviated the market's previous mindset of continuous ample supply, thus providing a fundamental basis for the gradual rebound of ICE cotton.

In addition, U.S. cotton weekly export sales have increased week on week and year on year, and the current levels are basically at a relative high point compared to the same period in recent years. Despite China's continued lack of demand, the substantial increase in demand from Vietnam has continuously filled the gap. Lastly, and most importantly, while macroeconomic indicators suggest a short-term boom in the U.S. economy, which has weakened expectations for further interest rate cuts by the Federal Reserve, the U.S. dollar index has instead risen and then retreated, gradually forming a downward trend. This macroeconomic shift greatly benefits expectations for U.S. cotton exports. Although the global economic outlook is not good, the combination of low prices and exchange rate advantages still provides significant stimulus. Therefore, overall, as long as the U.S. dollar index continues to decline, U.S. cotton, priced low, will remain in demand from buyers for some time.