The US cotton market quickly shifted into profit-taking mode after Tuesday's strong rally, closing lower for two consecutive sessions. This brief surge, driven by speculative capital, appears unsustainable under the combined pressure of fundamentals and external markets. For the textile supply chain, understanding the underlying logic of this volatility is more important than tracking daily price moves.
Strong Exports Fail to Support Prices
The USDA's latest weekly export sales report showed net upland cotton sales of 66,400 bales for the current marketing year, a sharp 36% increase from the previous week. While this data is a clear bullish signal, the market reaction diverged—ICE December cotton futures edged down only 0.04 cent to settle at 80.63 cents per pound.
This "bullish data, bearish price" phenomenon indicates that short-term pricing power has shifted from fundamentals to capital flows. Profit-taking from the earlier rally, especially concentrated liquidation of speculative long positions, offset the support from export data. A StoneX analyst noted that the market found technical buying support near the 40-day moving average, but the rebound was limited.
For Chinese buyers, one detail warrants attention: net sales to China were only 3,294 bales, and shipments were just 1,645 bales. This suggests actual participation by Chinese buyers remains low, casting doubt on the sustainability of US cotton export growth.
Dual Pressure from External Markets and Weather Expectations
Falling oil prices were another key factor weighing on cotton. On July 9, international crude oil dropped about 2%, directly lowering production costs for polyester fiber, a substitute for cotton. As synthetic fibers increasingly replace cotton, weaker oil prices often cap cotton's upside potential.
Meanwhile, the US Climate Prediction Center confirmed that El Niño will strengthen by year-end, with a 97% probability of persisting through early spring 2027. For key growing regions like Texas, El Niño typically brings more rainfall, potentially boosting yields and reducing abandonment rates. This expectation has somewhat alleviated market concerns about supply, thereby suppressing upward price momentum.
Technical and Macro Sentiment in Play
From a technical perspective, the 80-cent level and the 40-day moving average form key short-term support. Prices rebounded from this zone during intraday trading on July 9, indicating underlying buying interest. However, resistance near 82 cents remains strong, and the market may enter a range-bound consolidation in the near term.
On the macro front, a weaker US dollar usually benefits dollar-denominated commodities, but it failed to lift cotton prices this time, suggesting the market's focus has shifted to the upcoming USDA monthly supply-demand report. Set for release on July 11 Beijing time, this report's estimates for global production, stocks, and consumption will directly influence the next pricing benchmark.