On September 4, ICE cotton futures settled at 86.33 cents per pound, down 0.14% on the day, after touching a two-week low of 85.68 cents. More notably, the contract posted a weekly decline of over 5%, the largest in recent weeks. The immediate catalyst was a stronger U.S. dollar, as August non-farm payrolls came in much stronger than expected and the unemployment rate held at 4.1%. This dampened hopes for aggressive Fed rate cuts, lifting the dollar and making dollar-denominated cotton more expensive for overseas buyers, thereby curbing demand.
Market Context
This drop is not an isolated event. Just last week, cotton futures had hit a two-year high on deteriorating crop prospects, with market concerns centered on a potentially very strong El Niño event affecting key growing areas. However, bullish sentiment quickly faded. The USDA's weekly export sales report released on Thursday was weak, indicating that overseas buyers were reluctant to purchase at elevated prices, undermining demand-side support.
Macroeconomic factors added to the volatility. Strong jobs data not only boosted the dollar but also altered expectations for the interest rate path, prompting funds to reposition in commodity markets. Cotton often moves in tandem with grains; CBOT wheat stabilized after retreating from a 3.5-year high, while corn futures continued to decline, adding to the bearish sentiment across the complex.
Industry Impact
For textile companies, the current pullback may be a temporary correction. The market is now focused on the upcoming USDA monthly supply-demand report, which will provide key estimates for global cotton production in the new season. With El Niño weather threats still unresolved, any sign of lower production could reignite the rally. Therefore, it is premature to declare that cotton prices have entered a downtrend.
From an industry perspective, spinning mills in regions reliant on imported cotton, such as Shandong and Jiangsu, will closely watch overseas price moves. A decline in ICE cotton directly lowers import costs, but concurrent yuan exchange rate changes may offset some of the benefits. For buyers, if the USDA report turns bearish, prices could fall further, potentially opening a window for stockpiling. Conversely, if the report confirms production shortfalls, prices may rebound quickly, making chasing the market risky.
Meanwhile, ICE deliverable stocks of No. 2 cotton futures contracts stood steady at 63,092 bales, indicating no significant oversupply in the physical market. The Cotlook A index fell 225 points to 96.00 cents per pound, showing a clear spot-market decline, yet it remains above futures prices, suggesting some support for actual transaction prices.