ICE cotton futures surged nearly 4% on July 7, with the December contract settling at 81.29 cents/lb, the highest since June 2. This sharp rally is not an isolated event but the result of deteriorating weather conditions in major U.S. growing regions and rising demand expectations. For Chinese textile enterprises, upstream raw material cost volatility is shifting from anticipation to reality.
Weather-Driven Supply Concerns Intensify
The USDA's latest weekly crop progress report showed that as of July 5, only 46% of the U.S. cotton crop was rated good-to-excellent, down 2 percentage points from the previous week and well below last year's 52%. Texas, the largest cotton-producing state, continues to suffer from severe drought, with soil moisture levels critically low. Although the squaring rate of 49% slightly exceeds the five-year average, the persistent decline in crop condition ratings suggests potential reductions in boll weight and yield per acre. Industry data indicates that July is a critical period for cotton boll formation, and water stress at this stage can cause irreversible yield losses. Poor weather across major growing areas has cast a shadow over new-crop supply prospects, providing the most fundamental support for the price surge.
Substitute Costs Add Upward Pressure
Cotton and polyester fibers are substitutes, and rising oil prices increase the production cost of chemical fibers, indirectly boosting cotton's competitiveness. On July 7, NYMEX crude oil futures rose over 2.7%, triggered by reports of a vessel attack near the Strait of Hormuz, reigniting concerns about supply disruptions in the Middle East. Additionally, the U.S. terminated the general license for Iranian oil sanctions waivers, further tightening crude supply expectations. The widening spread between Brent and WTI has pushed PTA prices higher. For fabric buyers, the narrowing price gap between cotton and polyester warrants attention; if oil prices remain elevated, the cotton blending ratio in downstream mixed-spun products may shift.
Speculative Positioning and Report Anticipation
CFTC data showed that as of the week ending June 30, speculative net long positions in ICE cotton had decreased by 3,740 contracts to 54,512, indicating that some longs had already exited. However, three key reports due this week—the delayed CFTC commitments of traders report, Thursday's export sales report, and Friday's USDA World Agricultural Supply and Demand Estimates (WASDE) report—will reshape market expectations for the supply-demand balance. The July WASDE report typically includes the first substantive adjustments to planted acreage and yield estimates. If the USDA lowers production forecasts, the current price level around 81 cents/lb could have further upside; conversely, weak export data could trigger profit-taking.
Transmission to China's Cotton-Textile Chain
The overseas surge directly raises the cost of imported cotton. At current exchange rates, the landed cost of imported cotton under the 1% tariff has exceeded 14,500 RMB/ton, narrowing the price gap with Xinjiang cotton to within 500 RMB/ton. This puts immediate pressure on spinning mills that rely on imported cotton, while Xinjiang cotton producers gain short-term price support from substitution effects. However, it is important to note that downstream demand for gray fabrics and garments has not shown synchronized recovery; end-use demand remains in a weak recovery phase. If raw material costs rise rapidly while finished product prices cannot be passed on smoothly, mills' profit margins will be further compressed.