The U.S. cotton spot market experienced a sharp rally in the second week of July. According to public data from the USDA, the average price for base-quality cotton across seven designated markets hit 72.98 cents/lb for the week ending July 9, up 347 points from the previous week. This price is not only higher than the prior week's 69.51 cents/lb but also 14.7% above the 63.64 cents/lb recorded a year ago, marking the highest weekly average of the current marketing year.
Futures-Spot Co-Movement and Volume Divergence
The spot price strength was in sync with a rally in ICE cotton futures. On July 7, the most-active December contract surged 3.8% in a single session, reaching its highest settlement since June 2. Despite a slight 0.05% pullback on Thursday to 80.63 cents/lb, futures remain in elevated territory.
However, the price surge failed to translate into physical trading volume. Weekly spot volume totaled just 1,732 bales, a 55% plunge from the prior week's 3,865 bales and below the 2,739 bales traded a year ago. This 'price up, volume down' divergence suggests the rally is more sentiment-driven than demand-supported. From an industry perspective, downstream mills show little appetite for high-priced cotton.
Regional Crop Divergence: Texas Drought vs. Southeast Bounty
The USDA's July 6 Crop Progress report indicated good conditions in the Southeast. Alabama's squaring rate reached 64% and boll-setting 22%; Georgia posted 63% squaring and 14% boll-setting, with most crops rated 'good.' This points to a promising new-crop supply outlook in the Southeast, which may cap upside potential for forward prices.
Texas tells a different story. In West Texas, Kansas, and Oklahoma, daytime highs ranged 95-102°F, with nighttime lows of 60-79°F. While some areas received trace to 1.25 inches of rain, many fields remain dry. Hail and strong winds have also damaged some acreage. Cotton growth stages span from early emergence to blooming, and dryland fields need sustained rainfall, especially during the critical boll-setting phase in August.
Demand: Domestic Caution, Export Inquiries Heat Up
Domestic mills showed moderate inquiry interest, mainly for higher-grade cotton for Q3-Q4 2026 delivery, but no trades were reported. Yarn demand remains slow-to-moderate, and mills are balancing raw material procurement against finished-order visibility. This cautious stance aligns with the weak spot volume.
Export channels exhibited 'hot inquiries, cold deals.' Far East agents showed strong interest in discounted cotton, with active inquiries from India, Pakistan, and Vietnam, but again no actual trades. This reflects overseas buyers' resistance to current high prices, preferring to wait for pullbacks or seek alternative origins.
Notably, cumulative spot volume since the marketing year began (Aug 1) reached 1,522,026 bales, up 55% from 983,983 bales a year earlier, indicating robust year-to-date offtake. However, weekly momentum has clearly decelerated.
Price Outlook: Short-Term Bullish, Mid-Term Under Pressure
The core tension in the U.S. cotton market is between supply-side weather uncertainty and demand-side weakness. Texas drought provides bullish fodder, but good Southeast conditions and cautious downstream buying cap gains.
At 72.98 cents/lb, spot prices are over 14% above last year, offering an attractive hedging window for growers. For buyers, with yarn margins thin, price sensitivity is high, and resistance to levels above 70 cents is significant.
Key variables to watch in coming weeks: Texas rainfall—which directly shapes 2026/27 production expectations—and China's import quota allocation, plus buying appetite from India and Vietnam. If weather premiums persist, ICE December could test 82-85 cents; if demand fails to catch up, the risk of a correction from current highs increases materially.