The US cotton belt is experiencing a drought crisis that has deteriorated sharply year-on-year. According to the latest USDA drought monitor data as of July 7, 2026, the drought proportion in cotton-producing areas reached 55%. Although this is down slightly by 1 percentage point from the previous week, it has surged 52 percentage points from the 3% recorded at the same time last year. This figure indicates that the severity of the current drought far exceeds historical averages for this period, posing a substantial threat to cotton crops as they enter a critical growth phase.
The Logic Behind Production Reductions
The drought coverage ratio is directly linked to cotton yields. As the world's largest cotton exporter, any fluctuation in US output has a decisive impact on international cotton prices. The current 55% drought coverage means more than half of cotton fields are experiencing water stress. Cotton is highly sensitive to water availability during the squaring and boll-setting stages. Prolonged drought can lead to increased boll shedding, shorter fiber length, and ultimately lower yields. The USDA has already lowered its US cotton acreage forecast. If the drought does not ease effectively through late July and August, the reduction in the 2026/27 US crop could exceed market expectations.
Looking at the futures market reaction, the Zhengzhou Cotton main contract 2609 closed at 15,930 yuan per ton on July 9, significantly higher than previous lows. The bullish sentiment from this drought news has already been partially priced in, but the market is still waiting for clearer weather signals. If rainfall in the coming two weeks remains below expectations, Zhengzhou Cotton may break through the 16,000 yuan per ton mark.
Transmission Effects on the Domestic Textile Chain
China is the world's largest cotton consumer and relies heavily on imports, especially from the US, to bridge the domestic supply-demand gap. Expectations of a reduced US crop will directly push up import cotton prices, thereby lifting the entire domestic cotton price center. For spinning mills, rising raw material costs will squeeze processing margins. Mills focused on low-to-medium count yarns, which have limited ability to pass on costs, will face greater operational pressure.
- Cotton yarn prices may follow the upward trend, but downstream weaving and garment companies may adopt a cautious purchasing stance, creating a tug-of-war between upstream and downstream.
- The Xinjiang cotton region in China is currently in good condition. If the new crop arrives with stable yields, it could partially offset the US shortfall, but short-term market sentiment remains bullish.
- Substitution effects may re-emerge, with demand for polyester staple fiber and viscose staple fiber potentially increasing in phases.
Timing Adjustments for Sourcing and Foreign Trade
For textile foreign trade companies relying on imported cotton, now is a critical moment to reassess procurement strategies. The expectation of a reduced US crop is already partially reflected in prices, but if the drought worsens, there is still room for prices to rise. Companies are advised to closely monitor the USDA's weekly drought reports and weather forecasts for major US growing regions.
For Sourcing Managers - Increase the proportion of US cotton in forward contracts to lock in current relatively low prices and hedge against the risk of a sharp price surge as the production cut materializes. - Diversify raw material sources by increasing inquiries and alternative options for Brazilian, Indian, and West African cotton to reduce dependence on a single origin. - Negotiate flexible contracts with merchants that include weather-triggered clauses, such as automatic basis adjustments when the drought proportion exceeds 60%.
For Foreign Trade Companies - Include raw material price fluctuation clauses in export order quotations to avoid order losses caused by rapid cotton price increases. - Monitor the RMB exchange rate trend. If cotton prices rise alongside RMB depreciation, import costs will face double pressure; consider forward hedging in advance. - Use futures tools for hedging. For the cotton volume required for confirmed orders, establish long positions on the Zhengzhou Cotton exchange.
Overall, the high year-on-year increase in drought coverage across US cotton areas is a supply-side signal that cannot be ignored. All segments of the textile industry chain need to reassess their cost curves and inventory strategies for the second half of the year, seeking certainty amid uncertain weather variables.