On July 9, the most-active December ICE cotton futures contract settled at 80.63 cents per pound, down 0.05% for a second consecutive daily decline. After surging 3.8% on Tuesday to its highest level since June 2, the market saw typical profit-taking. StoneX senior analyst noted speculative funds exiting after the rally, but technical support at the 40-day moving average helped the market recover some intraday losses.
Mixed Factors: Strong Exports Fail to Offset Short-Term Fund Outflows
Fundamentally, US cotton export data was not weak. The USDA report for the week ending July 2 showed current-crop upland cotton net sales of 66,400 bales, up 36% from the prior week, including 3,294 bales to China. Next-crop forward sales reached 86,971 bales. Shipments of 230,056 bales, though 14% below the four-week average, remained elevated. However, these bullish data failed to halt profit-taking, indicating market direction is dominated by speculative sentiment and fund flows rather than spot demand.
Lower oil prices added pressure. Crude fell about 2%, reducing production costs for polyester fiber, a substitute for cotton. For textile mills, a widening price gap between polyester and cotton can quickly shift procurement decisions toward synthetics—a persistent headwind for cotton.
Weather Variable: El Niño Could Reshape US Production Outlook
Notably, the US Climate Prediction Center reported a 97% probability that El Niño will strengthen by end of year and persist into early spring 2027. For cotton, El Niño typically brings more rainfall and moisture to key growing regions like Texas. This could boost yields and lower abandonment rates—a potential bearish signal for the 2026/27 crop.
However, weather impacts are lagging, and the market has not fully priced this variable. Traders now focus on the USDA monthly supply/demand report due July 10 (EST). That report will update global cotton balance sheets, particularly US production and ending stock estimates, directly influencing the next directional move.
Macro and Related Markets: Weaker Dollar Provides Support
On the macro front, a weaker US dollar index offered some support to dollar-denominated cotton. The Nasdaq closed sharply higher, with semiconductor stocks leading gains, suggesting improved risk appetite. However, lingering Middle East geopolitical tensions kept oil under pressure, capping cotton's rebound. Corn, wheat, and soybean futures also fell for a second day after weather-driven rallies faded, providing no cross-commodity support.
Near-Term Outlook: 80-Cent Level as Bull-Bear Divide
Overall, ICE cotton is in a tug-of-war between bullish and bearish forces. Upside is capped by profit-taking and weak oil, while downside is supported by strong exports and technicals. The 80-cent level is a critical psychological and technical threshold: a break lower could trigger stops and open downside; holding it could sustain the recovery trend.
For the textile supply chain, short-term volatility means narrowing procurement windows. Spinners should monitor the 80-cent level closely and adjust pricing strategies based on inventory cycles and order books.