ICE cotton futures fell for a second consecutive session on July 9, with the most-active December contract settling at 80.63 cents per pound, down just 0.04 cents. The modest decline came despite a surprisingly strong weekly export sales report from the USDA, a divergence that warrants closer examination.
Strong Exports Fail to Halt Profit-Taking
The USDA's weekly export sales report for the week ending July 2 showed current-crop upland cotton net sales of 66,400 bales, up 36% from the previous week, while new-crop sales reached 86,971 bales. Yet the bullish data failed to keep money in the market. A senior vice president at StoneX Consulting noted a small outflow of funds, as speculative traders locked in profits after Monday's 3.8% rally, which pushed prices to their highest since June 2.
Such "sell-the-news" behavior is common in agricultural futures. For mills and traders, the short-term price move does not change underlying fundamentals, but shifts in speculative sentiment can alter buying patterns. At current levels, buyers are more inclined to wait on the sidelines than to chase prices higher.
Weaker Oil Pressures Substitute Costs
Another headwind came from the energy market. Crude oil fell about 2% on July 9 as geopolitical risk premiums receded. Lower oil prices reduce the production cost of polyester, cotton's main synthetic substitute, thereby eroding cotton's competitive edge. As the price gap between cotton and man-made fibers narrows, spinners may shift their raw material mix further toward synthetics, a medium-term bearish factor for cotton.
Notably, ICE cotton found technical support near the 40-day moving average during intraday trading, paring early losses. This suggests the market is not uniformly bearish, with strong buying interest around the 80-cent level.
El Niño Could Reshape U.S. Production Outlook
The U.S. Climate Prediction Center reported that El Niño is expected to strengthen by late 2026 and persist into early spring 2027 with a 97% probability. Typically, El Niño brings increased rainfall and moisture to Texas, the largest cotton-growing state in the U.S., which can boost yields and reduce abandonment rates.
If precipitation materializes as forecast, 2026/27 U.S. production could exceed current market expectations, pressuring deferred futures. However, weather impacts take time to manifest. In the near term, traders are focused on the USDA's monthly World Agricultural Supply and Demand Estimates (WASDE) report, due early Saturday Beijing time. This will be the first report to include new-crop production estimates and is a critical indicator for supply-side direction.
Grain Markets Also Retreat
Chicago Board of Trade corn, wheat, and soybean futures fell for a second consecutive session as weather-driven gains from the previous month faded. While grain-cotton correlations are not as strong as oil-cotton linkages, a broadly bearish sentiment in agricultural commodities makes it difficult for cotton to rally alone.
Spot Market Follows Futures Lower
The Cotlook A Index on July 9 stood at 89.75 cents per pound, down 50 points, in line with the futures decline. Lower spot prices widen the bargaining room for international buyers. For major importers like China, this could be an opportunity to fix prices at a discount.