Cotton Prices Retreat from Highs: Weather Speculation Fades as Fundamentals Return

International cotton prices staged a textbook 'surge-and-crash' last week. ICE futures hit a new high of 93.74 cents/lb before retreating sharply, erasing most gains. The weekly average settlement for NY futures fell 0.8% to 89.28 cents/lb. Domestically, Zhengzhou cotton futures dipped to a low of 16,730 yuan/ton, averaging 16,968 yuan/ton, down 0.4% week-on-week. The domestic-import price gap narrowed to 1,752 yuan/ton, shrinking by 770 yuan/ton.

Market Background The immediate trigger for the correction was fading weather speculation. Earlier, drought concerns in northern hemisphere growing areas fueled a rally. But latest data showed US cotton condition ratings improved to 39%, still well below last year and the five-year average, but a clear improvement. With boll opening nearly 30% complete, the window for weather to materially affect yields is closing. Additionally, US export sales plunged to 6,237 tons, signaling high prices are curbing demand.

Macro headwinds also pressured prices. Geopolitical tensions resurfaced as US-Iran clashes near the Strait of Hormuz boosted risk aversion. Fed rate hike expectations rebounded to 58% after strong nonfarm payrolls, weighing on commodities. US-China trade signals were mixed, with a 7.5% tariff threat still looming over textile and apparel exports.

Industry Impact The price correction intensifies supply-demand tug-of-war along the chain. In China, Xinjiang cotton is entering concentrated boll opening, with new crop purchases imminent. Market expectations for output and opening prices diverge sharply. Some hand-picked seed cotton quotes in southern Xinjiang rose slightly, but most ginners remain cautious. Downstream, the 'golden September' is underperforming, with orders mostly small-lot, multi-variety trials. Inventories are depleting slowly, and losses are widening. After the sharp Zhengzhou correction, mills and fabric makers turned more cautious, purchasing only for immediate needs.

Globally, India's monsoon deficit widened to 14%, prompting USDA's Mumbai office to cut 2026/27 production to 5.33 million tons while raising domestic use to 5.7 million tons, tightening supply. Brazil's harvest is over 80% complete, with both production and exports revised up, partially offsetting northern hemisphere output concerns. Duty-free window imports from India could increase, supporting international prices.

Notably, central reserve cotton sales continued to achieve 100% turnover, with cumulative sales exceeding 280,000 tons. However, average prices and premium narrowed, indicating more rational bidding. Sustained high turnover suggests real demand exists, but also that supply pressure is building.

Practical Advice Overall, the global supply-demand balance remains tight, and production cut themes provide underlying support. But fading weather speculation and macro uncertainties suggest range-bound trading in the near term. Domestically, the tug-of-war between new crop output expectations and reserve sales, coupled with weak demand, will dictate direction. Breakouts require clarity on production data and actual order volumes.

For Buyers - Avoid chasing highs; purchase based on immediate needs and build positions gradually on dips to manage inventory risk. - Monitor new crop opening prices and reserve sales; assess import versus domestic cotton value as the price gap narrows. - Maintain cautious expectations for seasonal orders; lock in forward prices with downstream clients to mitigate margin compression.

For Exporters - Stay abreast of US-China tariff developments; before the 7.5% threat is lifted, be prudent with long-term contracts and consider hedging tools. - Evaluate Indian cotton purchases during the duty-free window to diversify supply sources, but ensure shipment reliability and quality. - Track weather and supply data (US condition ratings, Indian monsoon, Brazil harvest) to adjust procurement and pricing strategies promptly.