Cotton Prices Break Two-Year High: How Weather, Oil, and Geopolitics Reshape Textile Raw Material Cost Logic

On August 31, ICE December cotton futures settled at 93.14 cents per pound, up 1.93% on the day, and touched an intraday high of 93.74 cents, the strongest level since early 2024. Over the month of August, the contract gained about 14%, marking a second consecutive monthly advance. This rally is not driven by a single factor but by the convergence of weather, energy, and geopolitical tensions in a short period. For the textile industry, the sharp upward movement in raw materials is transmitting along the supply chain, forcing buyers and sellers to recalibrate their procurement and pricing strategies.\n\n## Background\n\nThe immediate trigger for the price surge is the persistent hot and dry weather in major US cotton-producing regions. Concerns over crop yields have been building, and speculative funds have taken advantage to push prices higher. Meanwhile, international crude oil prices jumped more than 2% following an escalation in the US-Iran conflict, which raised the production cost of polyester fibers, making cotton relatively more competitive as an alternative raw material and providing further support to cotton prices.\n\nGeopolitical factors played an amplifying role in this round of price action. After the US struck an Iranian island in the Strait of Hormuz and Tehran responded, the risk of supply disruptions in the global energy market was repriced. This raised risk appetite across commodity markets, and cotton, being a financialized agricultural product, naturally attracted speculative inflows.\n\nThe market is now awaiting the USDA's September supply-demand report, scheduled for September 11. Traders widely expect the report to lower cotton production estimates, as drought conditions in key growing areas have already hurt crop development. Kansas-based analyst Sid Love noted that the rally stems from multiple uncertainties—crop size, the depth of El Niño impacts, and the trajectory of oil prices—none of which are likely to be resolved in the short term.\n\n## Industry Impact\n\nThe high cotton price is affecting the textile chain in a layered manner. Upstream ginners and traders face higher working capital costs for physical purchases, while midstream cotton spinners see their raw material inventory costs rise rapidly, squeezing profit margins. For downstream fabric and apparel companies, the increase in raw material costs will eventually be reflected in product quotes, but there is a time lag, during which companies must absorb some of the cost pressure.\n\nFrom a substitution perspective, higher oil prices raise polyester costs, which actually strengthens cotton's relative price advantage. This means some orders that might have shifted to synthetics could return to cotton, providing additional support for cotton demand. However, there is a potential risk: if cotton prices remain elevated, end brands may accelerate the shift to alternatives like polyester to control costs, which in the long run could dampen cotton demand elasticity.\n\nFor foreign trade companies, cotton price volatility directly affects the stability of export quotes. Currently, we are in the 2026 spring/summer fabric sourcing season. If cotton costs cannot be passed through to end customers in a timely manner, exporters may face the dilemma of "having orders but not daring to accept them." Conversely, if downstream brands accept price increases, it helps companies lock in profits, but negotiations may take longer.\n\n## Practical Advice\n\n### For Buyers\n- Closely monitor the USDA report on September 11; if the production cut is larger than expected, consider locking in forward raw material contracts ahead of time to avoid further price increases.\n- Evaluate the price spread between cotton and polyester; when the spread reaches historical highs, adjust blending ratios appropriately to control costs, but keep in mind customer requirements for pure cotton quality.\n- Establish a price linkage mechanism with suppliers, linking raw material fluctuations to finished product pricing to shorten adjustment cycles and reduce unilateral risk.\n\n### For Foreign Trade Companies\n- Include floating price clauses in quotes, basing prices on the cotton futures price on the contract signing date or shipment date, to hedge against price risks for forward deliveries.\n- Use futures tools for hedging to offset price exposure from raw material inventories and existing orders, but set position limits based on the company's risk tolerance.\n- Strengthen communication with downstream customers, convey market information promptly, and strive to reach consensus on price adjustments before signing orders to avoid future disputes.