BMI Raises Global Cotton Prices Forecast for 2026
Global cotton prices are expected to remain firm through the second half of 2026 as tightening supplies and increasing weather-related risks continue to support the market, according to the latest report by BMI, a Fitch Solutions company.
The research firm said market attention is shifting toward the Southern Hemisphere crop cycle, where the risk of adverse weather, particularly in Australia, could affect production and keep prices elevated.
BMI has raised its forecast for the 2026 annual average of ICE-listed second-month cotton futures to 77.0 US cents per pound, up from its earlier estimate of 71.4 US cents per pound. The revised projection also represents a 15.3% increase compared with the 2025 annual average of 66.8 US cents per pound.
Cotton Prices Expected to Strengthen Further
BMI expects cotton prices to average 80.3 US cents per pound during the third quarter of 2026 before climbing to 82.5 US cents per pound in the fourth quarter as tighter supplies strengthen market fundamentals.
Although cotton prices have eased since mid-May alongside lower oil prices, the commodity has remained more resilient than crude oil. Between May 11 and July 9, cotton prices declined 10.1%, compared with a 26.8% drop in crude oil prices, indicating that supply concerns are becoming the dominant market driver.
So far this year, cotton prices have averaged 72.8 US cents per pound, up 8.9% from the 2025 annual average.
Global Cotton Production Forecast to Decline
BMI expects global cotton production to fall during the 2026/27 marketing season, with total output projected at 120.4 million bales, representing a 4.4% year-on-year decline.
Lower production in Mainland China and the United States is expected to outweigh modest gains in India.
Mainland China’s cotton production is forecast to decline 6.4% to 33.5 million bales, as government support for grain production encourages farmers to reduce cotton cultivation.
In the United States, production is projected to fall 4.3% to 13.3 million bales, with many growers switching to more profitable crops such as soybeans.
India is expected to remain an exception, with production forecast to increase 1% year-on-year, supported by slightly higher planting and improving domestic demand.
El Niño Raises Weather Risks
Weather remains one of the biggest factors influencing the cotton market.
BMI noted that investor sentiment remains positive despite some moderation in speculative activity. Net long positions stood at 31,985 contracts as of June 30, down from the 2026 peak of 62,045 contracts recorded on May 19.
The report highlighted that the US National Oceanic and Atmospheric Administration’s Climate Prediction Center confirmed El Niño conditions in June 2026 and expects the weather pattern to strengthen during the second half of the year. The agency estimates a 73% probability that at least a strong El Niño event will develop between July and September.
Northern Hemisphere producers, including the United States, China and India, are expected to face relatively limited production risks because the most sensitive crop development stages occur before El Niño reaches peak intensity.
Historically, El Niño brings below-average rainfall across Mainland China and South Asia, which may assist harvesting activities. In the United States, wetter conditions could disrupt harvesting but are not expected to significantly affect yields.
Australia Faces the Biggest Downside Risk
Australia is expected to face the greatest weather-related challenge, as El Niño is typically associated with drier conditions and below-average rainfall.
According to the Murray-Darling Basin Authority, water storage across major cotton-growing regions in New South Wales and Queensland stood at 52.9% on July 1, 2026, compared with 60.4% a year earlier.
Meanwhile, the US Department of Agriculture forecasts Australian cotton acreage to decline 30.9% year-on-year to 325,000 hectares, reinforcing expectations of lower production and supporting higher global prices.
Cotton Demand Continues to Outpace Supply
Despite concerns over global economic uncertainty and geopolitical tensions, including developments surrounding the US-Iran conflict, global cotton demand is expected to remain resilient.
BMI forecasts global cotton consumption at 122.4 million bales during 2025/26, rising to 123.2 million bales in 2026/27, representing annual growth of 1.9% and 0.7%, respectively.
As demand continues to exceed supply, the global cotton market is expected to move from a 3.6 million-bale surplus in 2025/26 to a 2.8 million-bale deficit in 2026/27, providing additional support for prices.
Large Inventories May Limit Sharp Price Spikes
Despite the tightening supply outlook, BMI believes substantial carryover inventories should help prevent the extreme price volatility experienced during 2021 and 2022.
Global ending stocks are projected to reach 76.6 million bales in 2025/26 before declining 7.2% to 71.1 million bales during the following season.
The report also assumes that shipping through the Strait of Hormuz will normalize by the first quarter of 2027, easing pressure on energy and fertilizer supply chains.
Key Risks to the Market Outlook
BMI identified three major risks that could alter its outlook for global cotton prices:
- More severe weather disruptions across Southern Hemisphere cotton-producing countries.
- A 45% probability that prolonged and complex US-Iran negotiations could keep energy and fertilizer costs elevated.
- Slower global economic growth that weakens cotton demand more than currently expected.