The main cotton-growing regions of the United States are experiencing an unprecedented drought crisis. According to the USDA's Agricultural Drought Monitor released on July 7, 2026, 55% of U.S. cotton-producing areas were under drought, down just 1 percentage point from 56% the previous week but a staggering 52 percentage points higher than the 3% recorded in the same period last year. This figure not only far exceeds market expectations but also marks the highest drought coverage for this period in USDA records.
Regional Drought: From Localized to Systemic Threat
Geographically, the severity of this drought lies in its broad coverage. Core cotton regions—Texas, Georgia, and the Mississippi Delta—are almost entirely under moderate to severe drought. Conditions in West Texas are particularly dire, with some areas experiencing extreme drought for six consecutive weeks. In contrast, during the same period in 2025, drought was sporadic and confined to a few non-core production areas. The 2026 drought has spread from localized spots to a blanket coverage, creating a systemic threat.
For growers, the current period coincides with squaring to early boll development—the most water-sensitive stage of the cotton life cycle. Persistent drought directly leads to increased square and boll shed, reduced boll weight, and ultimately lower yields and fiber quality. The USDA has already preliminarily lowered its U.S. cotton production estimate in the July WASDE report, but the market widely expects further downward revisions if drought persists into August.
Supply-Demand Balance: From Easing to Tightening
The United States is the world's largest cotton exporter, and its output directly influences the global price center. The 2025/26 global cotton supply-demand balance was already tight, with major importers like China, Vietnam, and Bangladesh maintaining resilient demand. The 52-percentage-point year-over-year surge in drought coverage makes a new-crop production cut highly probable.
From an inventory perspective, the USDA's earlier estimate for 2026/27 ending stocks was already near historic lows. If production shrinks further, the stocks-to-use ratio could fall below the 30% warning line. For buyers, this means international cotton prices are likely to shift upward in the second half of the year, and the window for low-cost replenishment is narrowing.
Zhengzhou Cotton Futures: Bullish Sentiment vs. Hedging Pressure
China's futures market has already reacted. The main Zhengzhou Cotton contract (2609) closed at 15,930 yuan per ton on July 9, up significantly from the previous session. The bullish logic is clear: reduced output expectations overseas are transmitted via import costs, combined with gradually destocking domestic commercial inventories, forming dual support.
However, caution is warranted. The current market has partially priced in the drought premium, and the 16,000 yuan/ton level presents strong technical resistance. Meanwhile, weather in Xinjiang remains normal, with new-crop growth progressing well. Domestic production increase expectations cap Zhengzhou Cotton's upside. Therefore, a pattern of "strong outside, stable inside" may emerge in the short term. Chasing long positions unilaterally carries increased risk; option combinations or basis trading are more suitable for risk management.