U.S. cotton export sales surged 36% week-over-week, yet ICE cotton futures fell for a second straight session, with the December contract edging down just 0.05% to 80.63 cents per pound. The divergence between strong fundamentals and a weak market reflects concentrated profit-taking after this week’s rally. The contract had jumped 3.8% on Tuesday to its highest since June 2, prompting speculative funds to cash out and cap further gains.
Technically, the 40-day moving average has emerged as a key support level. Analysts at StoneX noted that prices rebounded from that line and recovered part of earlier losses, indicating that buying interest has not entirely evaporated. However, lower oil prices reduced the production cost of polyester, a cotton substitute, creating indirect headwinds for cotton. Oil markets remain volatile as they assess Middle East tensions and the status of the Strait of Hormuz.
Structural Signals Behind the Export Data
The USDA’s weekly export sales report for the week ended July 2 showed net upland cotton sales of 66,400 bales for the current season, up 36% from the prior week. Sales to China were modest at just 3,294 bales, indicating Chinese buyers are purchasing on a needs-only basis without restocking aggressively. Forward sales for the next season reached 87,000 bales, suggesting some demand support, though the increment came mainly from non-Chinese buyers.
Shipment data revealed 230,000 bales were exported, up 5% week-over-week but 14% below the four-week average. Shipments to China totaled only 1,645 bales, remaining at low levels. The implication is clear: the recent pickup in sales is driven more by bargain hunting after price declines than by a genuine recovery in end-use consumption. Textile mills downstream remain cautious in inventory management, and a large-scale restocking wave has yet to materialize.
El Niño: A Variable for Future Supply
The U.S. Climate Prediction Center reported that El Niño is expected to strengthen by year-end, with a 97% probability of persisting into early spring 2027. For cotton cultivation, El Niño typically brings more rainfall and moisture to key growing regions such as Texas, which can boost yields and reduce abandonment rates.
Historically, El Niño years have seen lower abandonment rates and higher yields for U.S. cotton compared to La Niña years. If this forecast materializes, the 2026/27 U.S. crop could exceed current market estimates, potentially weighing on deferred contracts. However, weather remains highly uncertain, and the market still holds divergent views on long-term supply.
Cross-Market Linkages and Macro Impact
Chicago grain futures fell for a second consecutive day as the weather-driven rally faded. Traders are awaiting the USDA monthly supply-demand report, due Saturday Beijing time, which could adjust acreage and yield estimates.
On the macro front, a weaker U.S. dollar provided some support for dollar-denominated cotton. The Nasdaq rallied sharply on chip stocks, reflecting improved risk appetite. However, oil prices dropped about 2%, driven by concerns over inflation and the economic outlook, which may indirectly dampen speculative demand for textile raw materials.