On August 31, the ICE December cotton contract settled at 93.14 cents per pound, touching an intraday high of 93.74 cents—the highest level since early 2024. A 14% monthly gain is uncommon in recent cotton markets, signaling more than a seasonal fluctuation. It reflects a concentrated release of multiple supply-side risks within the same window. For the textile chain, each one-cent rise in cotton adds roughly $40 per ton to yarn costs, narrowing the window for procurement decisions.
Background
Persistent hot and dry weather in key US growing regions is the direct trigger. Concerns over crop yields are not unfounded—the El Niño event has been stronger than earlier forecasts, and soil moisture in critical cotton areas has been at historical lows for weeks. The USDA will release its latest supply-demand report on September 11, and traders widely expect a downward revision in production. This expectation has already been priced into the market, as evidenced by the steady climb over recent weeks.
Meanwhile, international oil prices surged over 2.5% due to escalating US-Iran conflict, with tensions in the Strait of Hormuz repricing global supply disruption risks. The direct transmission channel is higher production costs for polyester fiber—cotton's largest substitute. Higher polyester prices reinforce cotton's relative competitiveness, underpinning cotton prices. This substitution linkage has appeared historically, but this time it combines with weather-driven production cuts, creating a dual boost.
Industry Impact
High cotton prices hit downstream spinners structurally. For mills focused on pure cotton yarn, raw material costs typically exceed 70% of total costs. At levels above 93 cents, profit margins are severely compressed, and some small and medium enterprises may be forced to cut production or delay orders. For buyers, the current price enters a 'high-cost, high-risk' zone. If the USDA report confirms production cuts, prices may rise further; if not, the pullback could be significant.
From a chain perspective, cotton price increases gradually transmit to grey fabric and fabric sectors, but terminal apparel consumption has not shown synchronized recovery, causing lags and resistance in downstream pass-through. Foreign trade companies need to pay special attention to exchange rate and freight fluctuations—a weaker dollar partially offsets the rise in dollar-denominated cotton prices, but rising freight and energy costs offset these gains. Overall, high-level volatility will be the norm for the textile market in the second half of the year.