At 80.63 cents per pound, the ICE December cotton contract closed marginally lower on July 9, marking its second consecutive decline. This came despite a 36% week-over-week surge in U.S. cotton export sales—a bullish fundamental signal that failed to lift prices. The market's inability to rally on good news suggests shifting short-term momentum.
Strong Exports, But Profit-Taking Dominates
The USDA's weekly export sales report for the week ending July 2 showed current-year upland cotton net sales of 66,400 bales, up 36% from the prior week. Sales to China totaled 3,294 bales—modest but noteworthy given the relatively stable trade environment. More significantly, next-year sales reached 87,000 bales, indicating overseas buyers see value at current levels. Shipments also held firm at 230,056 bales, up 5% week-over-week, with 1,645 bales destined for China.
Yet these numbers failed to support prices. StoneX senior vice president Bailey McHenry attributed the decline to profit-taking by speculators after a 3.8% rally on Tuesday that pushed prices to their highest since June 2. McHenry noted strong support near the 40-day moving average, from which prices bounced to recoup some losses, suggesting buyers remain active at lower levels.
Oil's Shadow: Polyester Costs Weigh on Cotton
Pressure also came from the energy complex. Crude oil fell about 2% on July 9 amid renewed inflation and global demand concerns. Lower oil prices reduce the production cost of polyester—cotton's main synthetic substitute—making cotton relatively less competitive. Every $1/barrel drop in crude shifts the cost structure of the polyester chain downward.
While geopolitical risks around the Strait of Hormuz persist, traders focused on actual supply-demand dynamics rather than speculative premiums. The combination of profit-taking in cotton and falling oil prices created a headwind that export data alone could not overcome.
El Niño: A Weather Option for U.S. Yields
If short-term trading is about sentiment, medium-term pricing hinges on weather. The U.S. Climate Prediction Center now gives a 97% probability that El Niño will strengthen by year-end and persist into early spring 2027. For cotton, El Niño typically brings more rainfall to Texas and other key growing regions, boosting yields and reducing abandonment rates.
Should El Niño materialize as forecast, U.S. production estimates for the 2026/27 season could be revised upward—a bearish signal for bulls defending the 80-cent level. However, weather forecasts are probabilistic, and the gap between expectation and realization leaves room for volatility ahead of the USDA's monthly supply-demand report.
Awaiting USDA: 80 Cents as the Battle Line
The USDA's World Agricultural Supply and Demand Estimates (WASDE) report is due at midnight Beijing time on July 11. Traders will focus on global ending stocks, U.S. production forecasts, and Chinese import demand. Until then, ICE cotton is likely to oscillate around 80 cents. Speculative net long positions have increased after the recent rally but remain insufficient to establish a clear trend.
The U.S. dollar index fell on July 9, offering theoretical support for dollar-denominated cotton. The Nasdaq closed sharply higher, led by chip stocks, signaling improved risk appetite. Yet these macro tailwinds have yet to translate into cotton market momentum, as traders remain anchored to fundamentals and technical levels.