Export sales surged 224% week-on-week, yet futures fell 0.72% — a divergence that exposes a split pricing logic: real demand is recovering while macro funds are retreating. For mills relying on US cotton, judging which force will dominate the next round of quotes matters more than chasing daily moves.
Strong Exports vs. Weak Futures
USDA weekly data showed net upland cotton export sales for the week ending September 17 reached 230,517 running bales, up 224% from the prior week and 244% above the four-week average. That jump ranks among the highest in two years. Yet the ICE December contract still fell 0.60 cents to settle at 82.71 cents/lb, though it gained 1.92% for the week.
Why didn't the export boost hold the board? The answer lies in a stronger dollar and weaker external markets. The dollar index hovered near a two-month high and was poised for a second weekly gain as Fed officials' inflation concerns fueled expectations of further rate hikes, pushing Treasury yields sharply higher. For dollar-denominated cotton, a stronger currency directly raises procurement costs for non-US buyers, offsetting some of the export optimism.
More notably, next-crop-year net sales to China were zero, and current-year net sales to China fell by 4,702 bales. This suggests Chinese buyers have visibly pulled back at current price and currency levels. For domestic textile firms, this could signal either a wait-and-see stance or a structural shift in arriving resources.
Drought and Substitute Costs Squeeze Both Sides
USDA's Office of the Chief Economist reported that about 72% of US cotton areas were affected by drought as of September 22, up from 65% the prior week and just 49% a year ago. The rising drought share poses a real threat to new-crop yields and is a key support behind the weekly gain.
Meanwhile, oil prices fell over 2% as markets weighed a possible US-Iran ceasefire and diesel export rumors. Lower oil prices reduce polyester production costs, weakening cotton's price competitiveness. For buyers, the cotton-polyester spread directly affects blend ratio decisions — when cotton holds firm on supply concerns while polyester weakens on cheaper oil, adjusting the blend may be more effective than locking in cotton prices.
Chicago wheat futures also declined as markets bet on diplomatic efforts to ease Black Sea export disruptions. The external pressure from weaker grain and oil markets offsets drought-driven supply concerns. This tug-of-war suggests cotton prices will likely stay range-bound in the near term, with no clear single driver for a directional move.
In the spot market, the Cotlook A Index stood at 93.75 cents/lb, up 50 points, diverging slightly from futures and reflecting that the physical market prices drought risks more directly.
Transmission Through the Supply Chain
The core tension is that export demand recovery is real, but currency and substitute costs are reshaping buyer behavior. For ginners and traders, surging export sales mean faster US cotton inventory drawdown, but zero next-year sales to China hint that Chinese buying may be delayed.
For downstream mills, drought could lift forward cotton prices while cheaper oil suppresses polyester costs, adding uncertainty to blend planning. Exporters must watch how a stronger dollar erodes quote competitiveness — the same FOB price buys less for overseas buyers during dollar appreciation.