The drought proportion in US cotton regions has surged 53 percentage points year-on-year, behind which lies a systemic downward revision of cotton yield expectations. As of June 30, 2026, USDA drought monitoring data shows 56% of cotton regions are affected, a slight 2-percentage-point drop from the previous week but a staggering increase from 3% in the same period last year. Extreme drought has evolved from an occasional event to persistent pressure, shifting the impact on global cotton prices from short-term sentiment to long-term fundamental restructuring.
Industry Transmission of the Drought Pattern
The US is one of the world's largest cotton exporters. Every 10-percentage-point increase in regional drought proportion typically corresponds to a 3%-5% decline in yield. The current 56% drought proportion means over half of cotton fields face water stress, especially in core regions like Texas where irrigation coverage is below 40% in some areas. The transmission chain is clear: drought reduces yield, leading to supply contraction and price increases. However, the slight drop from last week's 58% indicates short-term weather variability, so the market should focus on precipitation forecasts for the next two weeks.
In the futures market, the Zheng cotton main contract (2609) closed at 16,125 yuan/ton on July 2, with open interest of 569,000 lots, significantly higher than the previous week. The long-short scoring system gives a score of 1 (bullish), but market divergence is widening. On one hand, drought supports price increases; on the other hand, downstream textile enterprises' order recovery is below expectations, and high cotton prices may dampen procurement demand. This contradiction suggests that the price increase is not a one-way trend but a volatile upward pattern.
Industry Cluster Reactions and Price Expectations
Major Chinese cotton import ports such as Qingdao and Zhangjiagang have seen notable increases in foreign cotton offers. US cotton spot prices have risen about 5% since early June, but transaction activity has not increased in tandem. Importers generally adopt a 'buy-as-needed' strategy to avoid large-scale stockpiling at high prices. Meanwhile, the Xinjiang cotton region is growing normally without extreme weather similar to the US, providing an alternative for domestic textile enterprises. However, reduced US cotton yields will push up the global cotton price average, partially diluting Xinjiang cotton's pricing advantage.
As a core product after cotton processing, ginned cotton prices have been clearly transmitted. The tight supply expectation from US drought passes through the industry chain: ginners raise prices, spinners face cost pressure, and grey fabric producers see further margin compression. This cost transmission is not linear but depends on bargaining power at each stage. Large mills can lock in some costs through long-term contracts, while small and medium-sized mills face greater operational risk.
Strategies for Buyers and Foreign Trade Enterprises
In the current environment, procurement strategies need to shift from 'passive following' to 'active management.' For textile enterprises reliant on imported US cotton, the following is recommended:
For Buyers - Establish a drought monitoring and price warning linkage mechanism, incorporating USDA weekly drought data into procurement decision parameters; activate alternative procurement plans when drought proportion exceeds 50% - Prioritize locking in spot or near-month contracts to avoid weather premiums in far-month contracts; consider buying call options to hedge against price increases - Increase the procurement ratio of Xinjiang cotton, Brazilian cotton, and Indian cotton to diversify single-region risk; monitor the arrival pace of new Australian cotton
For Foreign Trade Enterprises - Add 'raw material price fluctuation clauses' to export order quotations to partially transfer the risk of cotton price increases to overseas buyers - Use Zheng cotton futures for hedging, gradually building short positions above 16,100 yuan/ton to lock in processing margins - Sign 'price-protected toll processing' agreements with upstream ginners, fixing processing fees while allowing ginned cotton prices to float, reducing raw material volatility risk
Overall, the 53-percentage-point year-on-year surge in US drought proportion has evolved from a short-term theme to a medium- to long-term pricing factor. The market must be alert: if precipitation returns to normal in the next two weeks, causing the drought proportion to quickly fall below 40%, the accumulated weather premium may rapidly unwind. Therefore, the core strategy is not to bet on a single-direction price move but to manage uncertainty.