The latest U.S. Drought Monitor data from the USDA sends a stark signal to the global cotton-textile industry: as of July 7, 55% of U.S. cotton-growing areas are experiencing drought, a dramatic 52-percentage-point jump from 3% a year earlier. Although down 1 percentage point from the previous week, this marks the most severe growing-season moisture stress since 2022. For Chinese mills that rely on U.S. cotton as a primary blending component, this is not a short-term weather anomaly but the start of a months-long cost and supply game.
Behind the Drought Data: Regional Production Structure
The 55% drought coverage is not evenly distributed. According to USDA regional classifications, the Texas Panhandle and the Mississippi Delta—which together account for about 45% of U.S. cotton output—are the most affected areas. A year ago, these regions were nearly drought-free. Now, soil moisture levels in early July have fallen to the lowest decile in a decade. Crucially, this coincides with the cotton plant's boll-setting to boll-opening stage—water stress directly reduces boll weight, shortens fiber length, and ultimately depresses lint yield and grade.
Public industry data shows that the 2025/26 U.S. cotton planted area was already about 8% smaller than the previous year. If yield losses materialize, actual production could fall below 3 million tons. This would significantly tighten an initially expected loose global supply, especially inflating premiums for high-grade cotton (e.g., ICE deliverable grades).
Futures Market: Price Transmission and Expectation Management
The Zheng Cotton main contract (January 2609) closed at 15,930 yuan/ton on July 9, up about 2.3% from the previous week. This seemingly modest rise must be viewed in a broader macro context: domestic textile end-demand has yet to show clear recovery, downstream weaving mill operating rates hover around 65%, and cotton yarn inventories continue to accumulate. Thus, this rally is purely cost- and supply-expectation driven, not demand-led.
Looking at internal-external spreads, Zheng Cotton now trades at a roughly 500 yuan/ton discount to imported cotton (based on the Cotlook A index). This means domestic mills chasing domestic futures will face even tighter processing margins. Yet switching to imported cotton means directly facing the premium from U.S. production losses—the ICE December cotton contract broke above 82 cents/lb on July 8, up nearly 8 cents from its June low.
For foreign trade enterprises, the currency effect adds another layer of risk: if the renminbi modestly weakens under Fed rate cut expectations, the actual landed cost of U.S. cotton could rise further.
Industry Impact: From Cotton to Fabric Price Transmission
In the near term, the U.S. drought will first push up prices of imported cotton yarn and cotton fabrics. China imports about 1.8 million tons of cotton annually, with U.S. cotton accounting for roughly 40%. Once U.S. production losses materialize, imported cotton prices will react first, then transmit to the domestic cotton yarn market. Given that domestic mills currently operate on a hand-to-mouth procurement strategy, any real supply tightening could trigger concentrated restocking demand, further boosting spot prices.
For weaving and fabric segments, cost pressure will likely become visible in the second half of the year. This is especially true for pure-cotton high-count yarn products like shirting fabrics and home textile bedding, where raw material costs can exceed 60%. If Zheng Cotton holds above 16,500 yuan/ton by September, downstream fabric prices will face at least a 3% to 5% upward adjustment.
However, this drought is not irreversible. If effective rainfall arrives in key U.S. cotton regions from late July through August, production expectations could partially recover, and cotton prices may correct. Therefore, the core market tension is not "production loss is certain," but "the uncertainty of the weather-production loss magnitude."