ICE cotton futures extended their decline for a second consecutive session on Thursday, with the most-active December contract edging down 0.04 cents to settle at 80.63 cents per pound. The marginal drop came despite a robust weekly export sales report from the U.S. Department of Agriculture, as investors locked in profits following a sharp rally earlier in the week.
Strong Exports, But Profit-Taking Prevails
The USDA's weekly export sales report for the week ending July 2 showed net upland cotton sales for the current marketing year at 66,400 bales, up 36% from the previous week. Sales to China totaled 3,294 bales, indicating continued but measured buying from the world's largest textile producer. For the next marketing year, net sales reached 86,971 bales, while shipments hit 230,056 bales, up 5% week-on-week.
On the surface, these figures paint a healthy demand picture. However, the market had already priced in much of this optimism during Tuesday's 3.8% surge, which lifted prices to their highest level since June 2. Profit-taking by speculative funds then took over, as noted by StoneX senior vice president Bailey McHenry, who pointed to "a small amount of money flow out of the market" as investors cashed in gains from the earlier rally.
Technically, the market found solid support at the 40-day moving average, from which prices bounced to recover part of the early losses. This suggests that the 80-cent level remains a key battleground, with buyers willing to step in on dips.
Oil and El Niño: Two Forces at Odds
Falling oil prices added indirect pressure on cotton. On Thursday, crude oil dropped about 2%, as markets weighed inflation concerns and their potential drag on global demand. Lower oil prices reduce the production cost of polyester, a key substitute for cotton in textile manufacturing, thereby weakening cotton's competitive edge.
On the weather front, the U.S. Climate Prediction Center raised the probability of a strong El Niño persisting through early 2027 to 97%. For key cotton-growing regions like Texas, El Niño typically brings increased rainfall and humidity, which can boost yields and lower abandonment rates.
These two forces create a tug-of-war: lower oil prices and improved supply prospects are bearish, while the uncertainty of El Niño's actual impact on crop quality adds a potential bullish element. The market is now waiting for the USDA's monthly supply-demand report, due early Saturday Beijing time, for fresh clues on production, ending stocks, and global consumption.
Grain Markets Also Retreat; All Eyes on USDA Report
Corn, wheat, and soybean futures on the Chicago Board of Trade also fell for a second day on Thursday, as weather-driven gains that had pushed prices to one-month highs faded. The synchronized pullback across the agricultural complex suggests a broader consolidation phase after recent speculative froth.
Industry Implications
For Chinese textile mills, the current range-bound trading around 80 cents means the window for purchasing foreign cotton is not yet closed. The Cotlook A Index, at 89.75 cents per pound, still carries a premium of about 9 cents over futures, reflecting tight physical supply.