On September 2, the ICE cotton futures for December fell 2.62 cents to settle at 88.93 cents per pound, a drop of 2.86%, and touched an intraday low of 87.56 cents, the weakest since August 25. This marked the second consecutive session of losses, following a multi-week rally that left the market technically overbought.
Market Context
The immediate trigger was profit-taking by traders. StoneX risk management consultant Bailey McHenry noted that commodities were experiencing a significant correction, with the market previously overbought. From a trading perspective, long positions had accumulated heavily, and once prices hit key resistance, profit-taking orders amplified the decline.
Meanwhile, the U.S. dollar index climbed to a nearly three-week high, driven by renewed U.S.-Iran military conflict that pushed oil prices up, fueling inflation concerns and boosting demand for safe-haven currencies. A stronger dollar makes cotton more expensive for overseas buyers, dampening international buying interest.
Notably, Chicago wheat, corn, and soybean futures also weakened on the day, again demonstrating cotton's correlation with grain markets. Weaker grains reduced expectations of competition for cotton acreage, further pressuring cotton prices.
Industry Impact
For the textile supply chain, this pullback is a double-edged sword. On one hand, for mills that had been waiting, the 88-89 cents level is near some psychological buying thresholds, and point-pricing orders may gradually enter, locking in relatively lower raw material costs for future orders. On the other hand, the Cotlook A index fell 155 points to 100.75 cents, showing spot prices declined but less than futures, meaning the basis widened and actual procurement cost savings are limited.
A deeper impact lies in cost transmission. U.S. crude oil futures rose nearly 1% on the day, as U.S.-Iran conflict continues to constrain global supply. Higher oil prices raise production costs for polyester, a substitute for cotton. This implies that if cotton prices continue to correct while chemical fiber prices stay firm, some blended orders may shift back to cotton, providing underlying support.
For export-oriented companies, a stronger dollar reduces import costs in dollar terms but may dampen overseas demand. The U.S. market accounts for a certain share of China's cotton imports. A stronger dollar could reduce U.S. cotton's attractiveness to Southeast Asian buyers, but for Chinese mills, the yuan's relative stability against the dollar means the actual cost change needs to be assessed with exchange rate movements.