80.67 cents per pound—that was the settlement price for the ICE cotton futures December contract on July 8, down 0.62 cents or 0.76% from the previous session. Just one day earlier, the same contract had hit its highest level in over a month. No new bearish news emerged; profit-taking was the direct driver of this pullback.
Post-Rally Correction and Dollar Pressure
Since early July, ICE cotton futures had gained about 5 cents in roughly eight trading sessions, an increase of over 6%. Rogers Varner, president of Varner Brokerage, noted that after such a rapid rise, the market needed to catch its breath. He observed notable resistance in the 81.50 to 82 cents range, where mills appeared to step back from purchasing.
Meanwhile, the U.S. dollar index strengthened on July 8, rising to a roughly one-week high, adding extra pressure on dollar-denominated cotton futures. A stronger dollar raises costs for overseas buyers, typically dampening demand.
Surging Oil and the Polyester Substitute Effect
Despite the pressure on cotton, turmoil in the crude oil market provided downside support. On July 8, oil prices closed nearly 5% higher, driven by President Trump's threat of new strikes against Iran, raising concerns about possible disruptions to shipping through the Strait of Hormuz.
Rising oil prices directly increase the production cost of polyester fiber, cotton's main substitute in textiles. Higher polyester costs encourage some mills to switch back to cotton, thereby underpinning cotton prices. This 'crude-polyester-cotton' transmission chain is particularly critical in the current environment.
Market Awaits Key Reports
Market participants are now focusing on two upcoming USDA reports. First, the weekly export sales report, due July 9, will reveal actual demand for U.S. cotton in recent weeks. Second, the World Agricultural Supply and Demand Estimates (WASDE) report, due July 10, will provide updated projections for the global cotton balance sheet for the new season.
Data from these two reports will directly influence market perceptions of supply and demand. Strong export data or a tightening supply-demand outlook could rekindle upward momentum; conversely, weak demand or upward production revisions could intensify the pullback.
U.S. Crop Conditions: A Worry for New-Crop Yields
The USDA's weekly crop progress report, released July 6, showed that as of that week, U.S. cotton good-to-excellent ratings stood at 46%, down from 48% the previous week and well below 52% a year ago. The squaring rate was 49%, up from 37% the prior week and slightly above the five-year average of 47%.
The declining good-to-excellent ratings signal a potential downside risk to new-crop yields. If this trend continues in subsequent reports, the USDA may be forced to lower its U.S. cotton production estimates in later WASDE reports, providing support to forward cotton prices.
Cash Market: Price Transmission in Sync
In the cash market, the Cotlook A Index on July 8 stood at 90.25 cents/lb, up a sharp 295 points from the previous day. The divergence between cash and futures prices reflects the physical market's firmness amid tight supply expectations. This futures-cash spread pattern is worth noting for buyers, as it may indicate that spot procurement costs will remain higher than futures hedging costs in the near term.