The US cotton belt is undergoing a quiet downgrade. The latest USDA Crop Progress report released data the market cannot ignore: for the week ending July 5, the US cotton good-to-excellent rate fell to 46%, down from 48% the previous week and 6 percentage points below the 52% recorded a year ago. At this critical window for cotton development, the consecutive decline signals that new-crop supply uncertainty is transitioning from expectation to reality.
Declining Condition Rating: More Than a One-Week Blip
Looking at crop development, the current squaring rate stands at 49% and the boll-setting rate at 14%, both near the five-year average. This indicates no significant phenological delay; the growth pace is normal. However, the good-to-excellent rate dropping from 48% to 46% marks the second consecutive weekly decline. Tracing back, this metric was still above 50% in mid-June, meaning it has lost nearly 10% in just three weeks.
For futures markets, a good-to-excellent rate below 50% is often seen as a psychological threshold. The current 46% level is not only below last year's but also below the five-year average for this period. More concerning is that drought monitoring data for Texas, the top producing state contributing nearly 40% of US output, has not shown significant improvement. If weather disruptions intensify, the condition rating could dip further to 40% or lower, making yield losses difficult to offset with acreage.
Transmission to International Cotton Prices: Floor Strengthening
USDA's June Acreage report already provided a bullish acreage estimate, and the declining condition rating adds fuel to the supply side. ICE cotton futures are currently trading in a 70-75 cents/lb range, but new-crop contracts already carry some weather premium. If the July-August boll-opening period encounters heat and drought again, the market will have to reassess 2026/27 US production.
For China's import cotton market, US cotton is a major source. A stronger US crop reduction expectation would directly push up foreign cotton quotes and widen the domestic-import price spread. Coastal spinning mills relying on imported cotton may face renewed raw material cost pressure in late Q3. Meanwhile, the procurement window under the sliding-duty quota would also narrow.
Indirect Impact on China's Cotton-Textile Chain
Although the domestic cotton market is mainly driven by Xinjiang production and reserve release schedules, changes in US cotton condition ratings eventually affect yarn costs and export competitiveness through import prices and downstream orders. Currently, the domestic textile industry is in the off-season, with operating rates generally at 60-70% and raw material procurement mostly on a need basis. If foreign cotton prices rise on supply concerns, some mills may switch to more cost-effective Xinjiang cotton or reserve cotton, altering short-term supply-demand dynamics.
Additionally, US crop reduction expectations could change the price ratio between domestic and foreign cotton. If foreign cotton rises faster than domestic, the substitution advantage of domestic cotton will become prominent, helping to destock domestic inventories. However, if the price gap widens too quickly, it could also weaken the price competitiveness of cotton textile exports, especially in orders competing with Southeast Asian mills.