Hedge funds return to cotton

For the first time in two years, hedge funds have begun increasing their investments in cotton, marking a shift from previously bearish sentiment in the market. Investors are increasingly viewing natural fiber as an attractive alternative to synthetic materials.

The main driver behind this shift is rising oil prices, which have increased the cost of synthetic fibers such as polyester and nylon. This has strengthened cotton’s competitiveness on the global market.

Higher energy prices are linked to geopolitical tensions, particularly the conflict involving the United States, Israel and Iran. As energy costs rise, the production of synthetic materials becomes more expensive, prompting textile manufacturers to adjust their raw material mix in favor of natural fibers.

Cotton futures have risen significantly in recent weeks, approaching nearly two-year highs. According to the U.S. Commodity Futures Trading Commission, long positions exceeded short ones by mid-April, signaling a clear change in investor sentiment.

Supply-side risks are also supporting prices. Rising fertilizer costs may reduce planting areas and production in the next season, while ongoing drought in key U.S. growing regions adds further uncertainty.

Analysts expect a potential global cotton deficit in the 2026–2027 season, which is reinforcing current price growth and expectations of sustained high levels.

Even if oil prices ease, experts believe cotton prices may remain elevated due to weakening supply outlooks, although existing inventories could help limit further sharp increases.