ICE cotton futures edged lower for a second straight session on July 9, with the December contract settling at 80.63 cents per pound, down just 0.04 cents. The decline followed a 3.8% rally earlier in the week, driven primarily by profit-taking from speculative funds.
Despite the modest drop, the market found technical support at the 40-day moving average, recovering part of the intraday losses. StoneX senior vice president Bailey McHenry noted that while some capital flowed out, the underlying support remains intact.
Strong export data fails to reverse sentiment
The USDA weekly export sales report showed net sales of 66,400 running bales for the current marketing year, up 36% from the previous week. New-crop sales reached 86,971 bales. Shipments totaled 230,056 bales, down 14% from the four-week average but up 5% week-on-week. Sales to China amounted to 3,294 bales, with shipments of 1,645 bales.
The positive export figures were overshadowed by profit-taking and falling oil prices. For textile buyers, the strong forward sales suggest that overseas demand remains healthy, keeping the supply-demand balance relatively tight.
Lower oil prices pressure polyester alternative
Crude oil fell about 2%, reducing the production cost of polyester fiber and weakening cotton's competitive edge in spinning. The substitution effect becomes more pronounced when the price gap between cotton and chemical fibers widens. With Brent crude hovering around $75 per barrel, further declines could increase substitution pressure.
El Niño strengthens, boosting Texas yield outlook
The U.S. Climate Prediction Center reported a 97% probability that El Niño will strengthen by year-end and persist into early spring 2027. For Texas, the key cotton-growing state, El Niño typically brings increased rainfall and humidity, which can improve yields and reduce abandonment rates. This suggests a potential upward revision in 2026/27 U.S. cotton production, weighing on forward contracts.
Grain market retreat and pre-USDA report caution
Chicago corn, wheat, and soybean futures fell for a second day as weather-driven gains faded. Traders are awaiting the USDA monthly supply-demand report due on July 10, with many reducing positions ahead of the release. A weaker U.S. dollar provided some support but was insufficient to reverse the downtrend.
Industry implications: near-term range-bound, focus on weather and import quotas
For Chinese textile mills, ICE cotton oscillating around 80 cents means imported cotton costs will remain relatively stable in the near term. However, two variables warrant attention: if El Niño delivers above-average rainfall, higher U.S. production could depress far-month prices; and whether China will issue additional import quotas.
The Cotlook A index stood at 89.75 cents per pound, down 50 points, with the domestic-import spread still inverted. Mills relying on imported cotton should consider locking in forward supplies below 80 cents to avoid sudden cost spikes from weather speculation.