Drought conditions in major US cotton-producing regions eased significantly in late June. According to the latest data compiled by the USDA's Office of the Chief Economist from the US Drought Monitor, approximately 58% of cotton-producing areas were affected by drought as of the week ending June 23, a drop of 18 percentage points from 76% the previous week. This decline indicates that the drought pressure of recent weeks is rapidly receding, substantially improving the growing environment for new-crop cotton.
Drought Relief and Yield Expectations
The drop from 76% to 58% in drought-affected area, occurring just before the critical boll-setting stage, directly benefits yield prospects. Industry public data shows the US is the world's largest cotton exporter, and drought conditions in its growing regions directly influence international cotton prices. The previous week's 76% drought ratio had fueled strong concerns about production cuts, driving ICE cotton futures higher. After the latest data release, pessimistic expectations for the 2026/27 US cotton crop began to ease, with some agencies already raising yield estimates.
Regionally, the drought relief is mainly attributed to significant rainfall in core areas such as West Texas and Oklahoma in mid-June. Improved soil moisture is expected to boost germination rates for fields planted late due to drought and reduce the risk of boll shedding for emerged plants. If weather remains normal, the 2026 US cotton crop could be 5% to 8% higher than earlier drought-scenario estimates.
Impact on International Cotton Prices and Chinese Procurement
The sharp drop in drought area directly undermines the weather premium in cotton prices. Since the data release, the ICE cotton futures main contract has corrected significantly, falling over 2%. For Chinese textile mills, this means the high import cotton costs seen since Q1 2026 may ease. Customs data shows China imported about 650,000 metric tons of US cotton in the first five months of 2026, accounting for over 35% of total imports. If US cotton prices fall on improved supply expectations, it will directly reduce raw material cost pressure for domestic mills.
However, caution is warranted. Late June through July is the critical water-demand period for US cotton growth, and weather patterns remain uncertain. NOAA's seasonal outlook indicates a continued risk of drier conditions in parts of Texas in July. This means the current bearish effect from drought relief could be offset by periodic weather-driven speculation, keeping cotton price volatility high.
Supply Chain Transmission and Outlook
From a supply chain perspective, the impact of eased US drought on domestic cotton yarn and grey fabric markets is indirect. Lower raw material cost expectations will first reflect in Zhengzhou Cotton Futures, then transmit to spot markets through basis trading, and finally affect procurement decisions at spinning and weaving mills. Currently, domestic textile companies generally maintain low raw material inventories, waiting for clearer cost floor signals. If US cotton prices weaken further, it could trigger a wave of concentrated basis procurement.
For export-oriented textile companies, the RMB exchange rate and US cotton prices form dual variables. With the RMB trading in a range against the USD, if US cotton price declines outpace RMB appreciation, profit margins on export orders could improve. Otherwise, forward exchange hedging and raw material hedging will be needed to lock in costs.