On July 7, the ICE cotton futures market saw its most active December contract surge by 2.99 cents, or 3.82%, settling at 81.29 cents per pound, the highest level since June 2. This sharp move reflects a convergence of fundamental supply concerns and market sentiment.
The latest USDA crop progress report showed U.S. cotton condition ratings falling to 46% good-to-excellent, down 2 percentage points from the prior week and well below last year's 52%. While squaring reached 49%, slightly above the five-year average, the deteriorating condition implies lower yield expectations. Texas, the largest cotton-producing state, continues to suffer from drought, with soil moisture at historic lows and no significant rain in the two-week forecast.
On the same trading day, NYMEX crude oil futures rose over 2.7% and extended gains after hours, driven by the U.S. termination of Iran oil sanctions waivers and reports of an attack near the Strait of Hormuz. Higher oil prices increase production costs for polyester, cotton's main synthetic substitute, reinforcing cotton's relative demand outlook.
CFTC data showed speculative net long positions in ICE cotton fell by 3,740 contracts to 54,512 as of June 30, suggesting that the rally was partly fueled by short covering. This week, markets await three key reports: the delayed CFTC commitment of traders report, Thursday's export sales data, and Friday's USDA World Agricultural Supply and Demand Estimates (WASDE).
For Chinese textile mills, the rapid rise in ICE cotton means higher import costs. The Cotlook A index climbed 150 points to 87.30 cents per pound. With domestic cotton still constrained by quotas, the widening spread between domestic and international prices will squeeze mill margins. Polyester staple fiber prices are also rising on crude oil strength, narrowing substitution options.