55%—that was the proportion of U.S. cotton production areas under drought as of July 7, 2026, a staggering 52 percentage points higher than the 3% recorded a year earlier. Even with a marginal 1-percentage-point decline from the prior week, the figure is enough to keep the global cotton-textile supply chain on edge. As the world's largest cotton exporter, persistent drought in the U.S. Cotton Belt makes a production shortfall in the new season almost inevitable.
Drought Data in Full
According to the USDA's Agricultural Drought Monitor, the drought coverage rate for U.S. cotton areas stood at 55% for the week ending July 7, compared with just 3% a year ago. On a weekly basis, the drought has remained in a high-level stalemate with minimal improvement. July is the critical boll-setting period for cotton, when water demand peaks. Sustained drought directly reduces yields and shortens fiber length, thereby degrading lint quality.
It is worth noting that last year's drought coverage was only 3%, a normal low level. This year's 55% coverage is approaching the historic extreme drought of 2011, when U.S. cotton output fell about 25% below trend and international prices hit record highs. Historical patterns suggest that when drought coverage exceeds 50% for three consecutive weeks, the eventual production loss often surpasses early market estimates.
Price Transmission to Futures and Spot Markets
The drought expectation has already begun to price in. The Zhengzhou Cotton Exchange's main contract for September 2026 closed at 15,930 yuan per ton on July 9, up from recent lows. The futures market's heightened sensitivity to bullish news indicates that speculative funds are pricing in a production cut premium. However, the current price level has not fully priced in an extreme drought scenario. If dryness persists into August, the futures price could have further upside.
For the spot market, the impact will transmit in two stages:
- In the short term, ginners and traders will tighten their selling pace, waiting for higher bids; farmers' holding sentiment may intensify.
- In the medium to long term, if a production cut materializes, the supply gap after the new crop arrives will widen the basis, systematically raising spinning mills' procurement costs.
Global Supply-Demand Rebalancing Pressure
The U.S. accounts for more than 35% of global cotton trade. A production shortfall will directly reduce international available supplies. Meanwhile, other major producers such as India and Pakistan also face weather uncertainties. The global stocks-to-use ratio may shift from the current relatively loose state to a tighter one. Although China, the largest cotton consumer and importer, has been reducing its reliance on U.S. cotton, alternative supplies from Brazil and Australia cannot fully compensate for the U.S. shortfall.
For domestic textile mills, two key variables need to be assessed: first, whether the state reserve cotton release schedule will be adjusted in response to tighter international supply; second, whether downstream orders can support the pass-through of raw material cost increases. Industry feedback suggests that domestic orders are stable, but export orders, already squeezed by volatile ocean freight and exchange rates, would accelerate the shakeout of small and medium-sized enterprises if cotton prices surge significantly.