93.14 cents per pound—this is the two-year high set by the ICE December cotton futures contract on August 31, with a daily gain of 1.93% and a cumulative increase of about 14% in August. This is not an ordinary fluctuation but the result of multiple supply-side pressures converging: persistent hot and dry weather in major US growing areas, rising oil prices due to escalating Middle East conflicts, and market expectations of reduced production in the upcoming USDA supply-demand report. For the textile supply chain, this means raw material cost pressures are transmitting from futures to spot markets and downstream sectors.
Supply Concerns Dominate the Market
The core driver behind this rally is concern over the production outlook of the United States, the world's largest cotton exporter. Several key growing regions are experiencing unusually hot and dry weather, linked to a very strong El Niño event. El Niño often brings abnormal climate patterns that threaten crop growth and yields. A commodity analyst in Kansas noted that price increases stem from multiple uncertainties: the extent of production losses, the future impact of El Niño, and how high oil prices may rise. These uncertainties have driven speculative funds to pile into long positions.
Traders are now focusing on the USDA crop supply-demand report scheduled for September 11. The market widely expects the report to lower US cotton production estimates, as weather conditions in key regions have already damaged crops. If the data meets expectations, prices may gain further support; conversely, if the reduction is less than expected, profit-taking could occur.
The Linkage Between Oil and Cotton Prices
Geopolitical factors played a significant role in this rally. On August 31, the United States attacked an Iranian island near the Strait of Hormuz, and Tehran said it had responded, escalating the six-month conflict. This event pushed international oil prices up more than 2.5% that day. There is a clear transmission path between oil and cotton prices: higher oil prices raise the production cost of cotton's substitute—polyester fiber—thereby weakening the substitution advantage of man-made fibers and maintaining or even enhancing cotton's competitiveness. For textile enterprises, this means that with high crude oil prices, the price disadvantage of cotton relative to polyester and other chemical fibers is narrowing, and procurement decisions need to be re-evaluated.
Notably, the US dollar index fell that day, providing additional support to dollar-denominated cotton futures. Meanwhile, US stocks fell and market risk aversion rose, prompting some funds to shift from risk assets to commodities.
Transmission and Impact on the Textile Chain
The continuous rise in cotton prices hits spinning mills first. Raw material costs typically account for over 70% of total costs, and every jump in futures directly increases procurement costs. For factories with forward orders that did not lock in raw materials at lower prices, profit margins will be significantly squeezed. More concerning, cotton price increases often lead to higher cotton yarn and grey fabric prices, but downstream apparel brands and buyers may lag in accepting price hikes, potentially compressing margins in intermediate links.
From a procurement strategy perspective, the market is in a typical seller-dominated phase. Analysts expect prices to continue rising "until no buyers are found," meaning the upward endpoint will be determined by demand-side tolerance. For buyers, now is the time to be wary of chasing highs while also guarding against supply disruptions.