Cotton’s Bull Case Builds Beneath a Falling Market
Iran conflict chokes China’s discount crude, polyester reprices and policy tailwinds gather — yet cotton futures have slid six straight weeks on macro fear, not fundamentals
Analysis based on remarks by Chris Kramedjian, Meadow Grove Research, to the Cotton Warehouse Association of America · Vail, Colorado · June 11, 2026
VAIL, Colo. — The cotton market has finally found the spark it spent a year waiting for — and then promptly stopped paying attention. That was the central tension running through a wide-ranging market outlook delivered June 11 to the Cotton Warehouse Association of America by Chris Kramedjian of Meadow Grove Research, who argued that a genuinely bullish structural story is being masked, for now, by recession fears, heavy old-crop stocks and speculative selling.
“We’ve got a rising tide — it should be lifting all ships, but we’ve got strong headwinds that are keeping those ships in the bay,” Kramedjian told the warehouse audience, summing up a market he described as “caught in the macroeconomic crossfire.”
FROM OVERSUPPLY TO KINDLING
Kramedjian opened by revisiting his diagnosis from a year ago: a thoroughly oversupplied market with broken price signals. A weak Brazilian real kept telling Brazilian growers to plant cotton even as world prices sagged, while a strong dollar shielded the rest of the world from the market’s signal — leaving the United States as the only major producer cutting acres. Layered on top was a demand shock from what he called the “tariff apocalypse” of Liberation Day, which froze orders from brands and retailers, and the largest Chinese crop in years, which all but erased China’s import gap.
But even then, he said, the bullish raw material was accumulating: empty downstream supply chains, large free supplies and rest-of-world demand that was quietly trending higher. “We could see the building kindling underneath this market,” he said. “The kindling started to burn” in January and February — and the match, it turned out, was geopolitics.
THE MATCH: VENEZUELA, IRAN AND CHINA’S CRUDE SQUEEZE
For five years, Kramedjian argued, China’s polyester industry — cotton’s chief competitor — was built on the world’s cheapest oil: discounted black-market crude from Venezuela and Iran. The U.S. takedown of Venezuelan supplies removed one leg; the escalating conflict with Iran, including renewed strikes this week and Tehran’s moves to choke the Strait of Hormuz, removed the other. With roughly 45% of China’s crude imports crossing the Strait, the squeeze hit suddenly.
“All the little teapot refiners have been tremendously shocked,” he said. “Many of them have gone out of business, closed the doors, shut down. Many of the polyester producers have gone out of business and shut down.” Feedstocks — PTA, monoethylene glycol and paraxylene out of Korea and Japan — turned scarce and expensive, and refiners across Asia were ordered to prioritize fuel over chemicals. With China producing roughly 65% of the world’s polyester, the ripple effects reached cotton quickly.
The transmission mechanism: how the Hormuz crude squeeze flows through China’s refiners and feedstocks into cotton’s competitive position. (Meadow Grove Research)
POLYESTER REPRICES — AND COTTON IS THE CHEAP FIBER AGAIN
The result is visible in China’s actively traded polyester staple fiber (PSF) futures, which leapt from roughly 6,500 to 8,500 RMB per ton after the late-February strikes on Iran before settling near 7,800. Cotton relative to polyester is now the cheapest it has been in a year, with the cotton-to-PSF price ratio falling to about 2-to-1.
Crucially, Kramedjian argued, the two fibers are not equally price sensitive. “Polyester is really the 99-cent value meal hamburger, and cotton is a filet,” he said. Mill clients in Pakistan, Vietnam and China report that their polyester goods flow mostly to price-driven domestic markets, while cotton demand has stayed comparatively firm — meaning mills are “making significantly more money spinning blended yarns instead of pure poly yarns.” Polyester operating rates have fallen below 70%, against a normal level around 82%, and producers still can’t fully offload what they make.
Polyester squeezed from both ends: supply knocked offline by feedstock costs while price-elastic demand flinches first — worth an estimated 500,000 bales a month of extra cotton use. (Meadow Grove Research)
Meadow Grove conservatively estimates the disruption is adding about half a million bales a month of global cotton consumption — roughly 6 million bales on an annualized basis. “The more expensive our substitute gets, the more we’re going to sell,” Kramedjian said, while cautioning against overstatement: a 10% drop in global polyester output is meaningful, but cotton could never replace a collapse in synthetic fiber wholesale. He also argued the effect has staying power: even with a resolution at Hormuz, drawn-down world oil inventories — including strategic reserves at “shockingly low levels” — should keep crude elevated well into 2027.
CHINA’S YARN BACK DOOR
Inside China, the story is one of strong consumption colliding with import quotas. Domestic cotton recently traded around $1.10 per pound — a yawning premium to world prices — yet raw-cotton imports remain tightly quota-controlled at 894,000 tons of WTO quota plus another 300,000 tons of sliding-scale processing quota issued this year. Kramedjian offered a political explanation for why Beijing won’t simply open the gates: “Textile mills and farmers are the core of the ethos and identity of China’s Communist Party,” he said, and acting so visibly against farmers “goes against their entire thinking.”
Cotton yarn, however, faces no such quota — and that is where the pressure escapes. As the spread between Chinese (ZCE) and world (ICE) prices hit multi-year highs, yarn imports spiked to roughly 200,000 tons a month in early 2026. Because that yarn is spun from rest-of-world cotton, China has effectively imported an extra million bales of cotton in yarn form — “tremendously supportive” of consumption everywhere else.
When Chinese cotton gets expensive, yarn flows in: the ZCE–ICE spread leads yarn imports by about two months. (China Customs, Bloomberg via Meadow Grove Research)
THE FUNDAMENTALS: A TIGHTENING BALANCE SHEET
The June WASDE, released just before Kramedjian took the stage, changed little but confirmed the direction. World production for 2026/27 is projected at 116.0 million bales against mill use of 121.8 million — the first stock drawdown of the cycle, with world ending stocks falling from 76.6 to 71.1 million bales. Outside China, the picture is tighter still: rest-of-world stocks drop 4.5 million bales to 35.6 million, the lowest of the cycle, while China continues to hold roughly half the world’s inventory.
For the United States, USDA pegs the 2026/27 crop at 13.3 million bales with exports of 12.3 million, drawing ending stocks down to 3.7 million — a stocks-to-use ratio near 27% that, on the historical relationship, implies a price around 80 cents. Kramedjian suspects USDA is still underestimating Chinese mill use, perhaps by a million bales in each of the past two years, given Beijing’s heavily subsidized buildout of spinning capacity in Xinjiang, where more than 90% of China’s cotton is now grown.
USDA’s June WASDE: a smaller U.S. crop and a bigger export pull tighten ending stocks to 3.7 million bales. (USDA WASDE-672, June 2026)
SO WHY HAVE PRICES FALLEN SIX STRAIGHT WEEKS?
Against that bullish backdrop, the obvious question — the one Kramedjian said everyone keeps asking him — is why cotton futures have slid roughly 19% from the May high to around 72 cents. His answer comes in four parts. First, a heavy old-crop overhang: even on the revised balance sheet, 4.2 million bales of beginning stocks, predominantly Texas high-grade short-staple cotton whose natural buyer, the Chinese state reserve, is not yet in the market. Second, macro correlation: with rate-hike odds rising — markets are now pricing a quarter-point Fed hike by the December meeting — cotton has traded with the Bloomberg Commodity Index on roughly nine out of every ten days. Third, a speculative unwind, as trend-following funds that piled in on the way up pile out on the way down. And fourth, better U.S. crop odds, as heavy rains eased what had been drought across some 98% of U.S. cotton area.
Four headwinds behind the six-week slide: old-crop stocks, macro correlation, spec selling and improved U.S. crop prospects. (Meadow Grove Research)
“It’s not really anything to do with the cotton fundamentals — it’s not really the world trading the supply and demand,” he said of the selloff. “What we’ve got on our hands is that the whole market’s afraid of a recession.” On the crop itself, he was measured: West Texas, southwest Oklahoma, Kansas and eastern New Mexico remain in drought, but four weeks of rain have improved conditions sharply. “Is it going to be a 15-million-bale crop? I kind of doubt that, but it’s probably going to be better than 13.3.”
POLICY TAILWINDS: COTTON PLAN, BACA AND A 301 CARVE-OUT
Looking past the near-term noise, Kramedjian pointed to a stack of policy catalysts aimed squarely at U.S. cotton demand. USDA’s Great American Cotton Plan, announced in May, pairs a 14% higher seed-cotton reference price and a 5-cent-per-pound mill incentive with formal support for the “Plant, Not Plastic” campaign — backing he called meaningful, particularly with HHS participation adding momentum. The bipartisan Buying American Cotton Act would layer on a tax incentive he estimates at 1% to 3% on a finished cotton garment.
The proposal he flagged most pointedly for the warehouse audience is USTR’s Section 301 textile carve-out, now in the comment period, which would grant tariff-rate quota relief to countries that purchase U.S. cotton — an idea that emerged from reciprocal-tariff negotiations with Bangladesh and Indonesia. His caveat was aimed at the lobbyists in the room: the incentive must be tied tightly to actual purchases. “It ought to be a quota generated by the purchase of U.S. cotton that’s transferable to the future importer,” he said — because if a 1-to-3% tax benefit can move consumption, “imagine what not paying a 10% tariff is going to do. That’s a pretty bullish mechanism, if we can get it right.”
Four policy levers pulling in one direction: the Great American Cotton Plan, BACA, a Section 301 carve-out and a potential China deal. (Meadow Grove Research)
The arithmetic behind his enthusiasm is the concept of inelastic demand for U.S. cotton — currently about 12 million bales between domestic mill use and committed foreign buyers — against end-user consumption of U.S. cotton he puts at roughly 16 million bales and rising as consumers sour on synthetic fibers. Policy that pushes the inelastic floor up by a few million bales, he argued, forces prices high enough to sustain crops of 16 to 20 million bales rather than 12 to 14 — with obvious consequences for average warehouse bale-days. On China, he was direct: “I do think the deal is done,” with Beijing simply waiting, in keeping with its insistence on reciprocity, for Washington to move first on announced purchases and Board of Trade clarity.
FOREIGN SUPPLY RISK: EL NIÑO AND A FERTILIZER CHOKE
The same El Niño pattern delivering rain to Texas — NOAA declared the event in June, with 63% odds of a “super El Niño” by winter — historically punishes the world’s other big growers. India’s monsoon is already running well below long-term averages, leading Meadow Grove to expect a smaller Indian crop than USDA projects; Australia typically runs on the opposite weather schedule from Texas; and Brazil, while less El Niño-exposed, trends drier after several favorable years.
Then there is what Kramedjian called the under-appreciated risk: fertilizer. The Gulf accounts for roughly 36% of global urea exports and about 30% of ammonia, and unlike crude, “it cannot be sent in an alternative pipeline — it’s got to go on a ship.” Southern Hemisphere growers need it first and don’t have it: Brazil, which imports 88% of its fertilizer and 95% of its nitrogen, has perhaps 15–20% of what its second crop requires; Pakistan is idling plants and burning buffer stocks; Australian supplies may reach only the largest growers. The United States, producing about 90% of its nitrogen at home, is largely insulated — a relative edge for U.S. growers. Quoting former Goldman Sachs commodities head Jeff Currie, he warned: “We’re sleepwalking into a commodity crisis.”
Same Strait, second hit: Hormuz-trapped fertilizer threatens foreign cotton output while the largely self-sufficient U.S. is insulated. (Meadow Grove Research)
THE BOTTOM LINE
Kramedjian’s thesis for 2026/27 is bullish — conditional on the market returning its attention to cotton’s own supply and demand. World-less-China stocks are draining, polyester substitution is quietly adding hundreds of thousands of bales of monthly demand, China’s yarn back door is propping up rest-of-world consumption, and policy, weather and fertilizer risks all tilt toward tighter foreign supply and stronger U.S. demand. The caveats are real: a genuine recession, a heavy Texas crop or a prolonged speculative unwind could keep the tape pinned. But the structural argument, he insisted, has not broken.
“This market is bullish if we can stop trading macro,” he said. “The balance sheet is bullish. The current effects on supply and demand are bullish. There’s no question about that.” The cotton futures market, he reminded the room, is full of traders who aren’t trading cotton at all — and until fear stops outrunning greed, the rising tide will keep straining against the headwinds holding the ships in the bay.
