Overseas cotton prices fell despite strong export data, as the market digested short-term gains and repriced macro pressures. On July 9, the ICE December contract settled at 80.63 cents/lb, down 0.04 cents, marking a second consecutive decline after a 3.8% surge in the previous session to the highest level since June 2.
Export Strength Offset by Profit-Taking
The USDA's weekly export sales report showed net sales of 66,400 bales for the current marketing year, up 36% week-on-week, with 3,294 bales to China and 86,971 bales for the next season. Shipments reached 230,056 bales, up 5% from the prior week but 14% below the four-week average. While demand appeared solid, speculative funds chose to lock in profits after the recent rally. StoneX senior vice president Bailey McHenry noted modest capital outflows, typical of profit-taking.
From an industry perspective, the boost from export data is diminishing. China's purchases account for a small share, insufficient to drive direction, while the slowdown in shipments hints at logistics or order execution uncertainties. For textile mills, with US cotton prices around 80 cents, the narrowing spread between domestic and imported cotton may revive the cost advantage of imports.
Oil Decline vs. Weather Expectations
Falling crude oil prices added pressure. On July 9, oil dropped about 2% as markets assessed the impact of Middle East tensions on Strait of Hormuz traffic. Lower oil reduces polyester fiber production costs, weakening cotton's competitiveness. However, this transmission typically takes 2-4 weeks, limiting near-term demand impact.
Weather factors signal medium-term bullishness. The US Climate Prediction Center confirmed a 97% probability that El Niño will strengthen by year-end and persist into early spring 2027. For key cotton regions like Texas, El Niño usually brings more rainfall, boosting yields and lowering abandonment rates. If precipitation is evenly distributed, 2027/28 US production may exceed expectations; excessive rain could disrupt planting.
Technical and Policy Crossroads
Technically, the December contract found support at the 40-day moving average, recovering some early losses. Currently at 80.63 cents, near the average, direction hinges on holding this level. A break below 80 cents could target 78 cents; a breakout above 82 cents would extend the rally.
Policy focus is on the USDA monthly supply-demand report due Saturday midnight Beijing time. The market generally expects a reduction in global ending stocks, but the magnitude is debated. A downward revision in US production due to lower planted acreage would reinforce bullish sentiment; a cut in export forecasts could trigger another selloff.
Industry Impact and Recommendations
Current prices are in a sensitive zone. For buyers, levels below 80 cents represent a phased entry opportunity, but positions should be managed ahead of the USDA report. For exporters, El Niño expectations mean supply uncertainties; it is advisable to include weather premium clauses in basis quotes.