On August 31, ICE cotton futures for December settled at 93.14 cents per pound, after touching an intraday high of 93.74 cents—the highest since early 2024. The contract gained about 14% in August, marking a second consecutive monthly rise. This rally is not driven by a single factor but by a confluence of weather, oil prices, and policy expectations. For the textile chain, every one-cent move in cotton translates into roughly 220 yuan per ton of yarn cost, making procurement timing increasingly critical.
Three Drivers: Weather, Oil, and Report Expectations
First, persistent hot and dry weather in key US cotton-growing regions is the most direct trigger. Poor soil moisture in Texas and other critical areas has fueled concerns about lower output. Such worries are not unfounded—historically, strong El Niño events have often reduced US yields, and current meteorological models suggest the shadow of a strong El Niño has not yet dissipated. Second, rising crude oil prices provide additional support. On August 31, oil climbed over 2% amid escalating geopolitical tensions, raising production costs for polyester fiber and thus maintaining cotton's competitiveness. Third, the market is awaiting the USDA supply-demand report due September 11. Traders broadly expect the report to lower US production estimates, and this expectation itself is driving prices to front-load the good news.
Industry Impact: Cost Pass-Through and Divergent Procurement Strategies
High cotton prices are transmitting downstream. For spinners, raw material costs typically account for about 70% of total costs; every 10% rise in cotton requires roughly a 7% increase in yarn quotes to maintain margins. Whether downstream weavers and garment makers accept such increases depends on the recovery of end demand. Current market feedback shows that high-count yarn orders are relatively stable, while low-count yarn sales have slowed noticeably—a pattern of 'high-end firm, low-end weak.' Meanwhile, polyester producers have raised staple fiber prices due to higher oil, narrowing the cotton-polyester spread and somewhat preserving cotton's share in blends. For exporters, the cost pressure from higher cotton usually lags by one to two months, meaning orders signed now may face squeezed margins.
Outlook: Expectation Game and Risk Points
In the short term, the pattern of prices being prone to rise rather than fall remains intact. Before the USDA report, market sentiment is likely to stay bullish; if the actual production cut exceeds expectations, prices could test higher levels. However, caution is warranted—current prices have already partially priced in the production cut, and high levels often accompany increased volatility. If the report disappoints or geopolitical tensions ease, an oil price pullback could trigger a rapid correction in cotton. Additionally, the dollar index is worth monitoring—on August 31, the dollar weakened, and if the Fed pivots dovish, a softer dollar would continue to support dollar-denominated cotton. For buyers, rather than chasing a one-way market, a phased approach to building positions can smooth average costs; options can also hedge against sharp fluctuations.