On August 31, ICE cotton futures for December settled at 93.14 cents per pound, up 1.93% on the day and touching a session high of 93.74 cents, the strongest level since early 2024. Over the entire month of August, the contract gained about 14%. The rally is not complicated: persistent heat and dryness across key U.S. growing regions have fueled expectations of lower output, while firmer oil prices have raised the cost of polyester fiber, giving cotton a temporary edge in the substitution battle.
Background
U.S. cotton futures rose for a second consecutive month, driven by a combination of weather and geopolitical factors. According to public industry data, several key U.S. cotton belts experienced abnormally hot and dry conditions in August, visibly deteriorating crop conditions. Market participants widely associate this weather pattern with a strong El Niño event, which typically brings heat and drought to the southern U.S., directly impacting cotton yields.
Meanwhile, international oil prices climbed more than 2% on August 31 following a U.S. strike on an Iranian island near the Strait of Hormuz and Tehran's response, escalating a conflict that has lasted six months. Higher oil prices directly increase the production cost of polyester fiber, as its upstream feedstocks, PTA and MEG, are closely linked to crude oil. When polyester becomes more expensive, cotton gains a relative price advantage, prompting textile mills to favor cotton and supporting cotton prices.
Industry Impact
For the textile supply chain, the pass-through effect of this cotton rally deserves attention. First, cotton yarn costs will move higher, especially for high-count and high-quality yarns, where raw material costs account for a larger share. For export-oriented mills, rising input costs will squeeze margins, while final order price adjustments tend to lag, leaving companies facing a dilemma of high costs and limited pricing power in the short term.
Second, the narrowing spread between cotton and polyester will alter downstream purchasing behavior. When cotton prices are too high, some blended fabric producers may increase polyester usage, but with oil prices also elevated, polyester costs are rising too, weakening the substitution effect. This means cotton's strength may be more durable than in previous cycles, and mills cannot simply rely on switching to polyester when cotton gets expensive.
Market attention is now focused on the USDA crop supply-demand report due September 11. Traders widely expect the report to lower production estimates, and if the actual data confirms this, cotton prices could rise further. However, high prices themselves will dampen demand, as one analyst noted: prices will keep climbing until buyers disappear. Thus, the future path of cotton prices will hinge on the tug-of-war between output cuts and downstream demand absorption.