On August 31, ICE December cotton futures settled at 93.14 cents per pound, up 1.93% on the day and touching an intraday high of 93.74 cents—the highest since early 2024. For the month, the contract gained about 14%, marking a second consecutive monthly advance. This rally is not an isolated event: scorching heat and drought in key US growing areas, El Nino expectations, and oil price spikes from Middle East tensions are collectively reshaping cost expectations across the global cotton-textile supply chain.
Weather and Geopolitics: Dual Variables Driving Cotton Higher
The immediate driver is adverse weather in US cotton belts. Persistent hot, dry conditions have threatened crop yields, amplifying concerns over production shortfalls. Meanwhile, a strong El Nino event is forming, adding to output uncertainty. Commodity analyst Sid Love noted that prices are rising due to three uncertainties: final production, El Nino's impact, and how high oil can go. This suggests current prices are not purely fundamentals-driven but include a significant risk premium.
Another variable comes from geopolitics. On August 31, the US struck an Iranian island near the Strait of Hormuz, and Tehran responded with attacks on US targets in Jordan and the UAE, sharply escalating a six-month conflict. Oil prices jumped over 2% that day. Higher oil raises production costs for polyester—cotton's main substitute—thereby enhancing cotton's competitiveness. This crude-oil-to-polyester-to-cotton transmission chain has recurred in past geopolitical crises, and this time is no exception.
Supply-Demand Report and Crop Cut Expectations: Market Awaits Direction
Traders are now eyeing the USDA's September 11 supply-demand report. Consensus leans toward a downward revision in US cotton production due to persistent adverse weather. Love expects production to decline and prices to keep rising "until there are no buyers." This implies that if the report confirms a cut, prices may have further upside; conversely, if the cut is less than expected, a correction could follow.
Notably, the US dollar index fell, lending extra support to dollar-denominated cotton, while US stocks declined on inflation worries, showing markets are simultaneously digesting war risk and tighter monetary policy. For textile firms, this means currency fluctuations and financing costs will resonate with cotton price swings, further complicating procurement decisions.
Industrial Impact and Procurement Strategy
High cotton prices affect the textile chain asymmetrically. Upstream ginners and traders may benefit from inventory appreciation, but midstream spinners face surging raw material costs—if downstream orders cannot raise prices accordingly, profit margins will be squeezed. Export-oriented textile firms may see competitiveness weaken due to higher cotton prices combined with currency volatility.
On substitution, stronger cotton may shift some orders to viscose or polyester, but elevated oil prices also raise polyester costs, limiting substitution scope. Thus, raw material choices narrow in the short term, intensifying cost-control challenges.