Despite a 36% week-on-week surge in USDA weekly export sales, ICE cotton futures for the December contract edged lower for a second consecutive session on July 9. The decline was negligible—just 0.04 cents, or 0.05%, settling at 80.63 cents per pound. This narrow movement reflects a tug-of-war between profit-takers and fundamental support.
Technical vs. Fund Flows
Earlier this week, the December contract surged 3.8% to its highest level since June 2. The subsequent two-day pullback is widely viewed as classic profit-taking after a rally. StoneX senior vice president Bailey McHenry noted light fund outflows as speculators locked in gains. However, the more telling signal is that prices found strong buying support near the 40-day moving average, recovering part of the early losses. This suggests the 80-cent level has become a key battleground, with technical buyers building a floor underneath.
Export Data Surprise: Chinese Demand Returns
The USDA report for the week ending July 2 painted a constructive picture. Current-crop upland cotton net sales reached 66,400 bales, up 36% from the previous week, including 3,294 bales to China. Next-crop sales hit 86,971 bales. Shipments were also solid at 230,056 bales, up 5% week-on-week despite being 14% below the prior four-week average. From an industry perspective, the marginal recovery in Chinese buying signals that downstream demand is not as weak as previously feared. For domestic textile mills, the stability of US cotton landed costs will directly influence raw material procurement strategies.
El Niño: An Underappreciated Weather Variable
The US Climate Prediction Center now sees a 97% probability that El Niño will strengthen through year-end and persist into early spring 2027. For cotton, El Niño typically brings more rainfall and humidity to key growing regions like Texas. This improves soil moisture, boosts yields, and lowers abandonment rates. Historical data shows that in El Niño years, US cotton abandonment rates drop by an average of 3-5 percentage points. If this materializes, 2026/27 US production could exceed current USDA estimates, putting downward pressure on forward prices. But in the near term, weather premiums remain supportive.
Cross-Market Spillover: Oil's Double-Edged Sword
Crude oil fell about 2% on July 9, directly lowering polyester production costs and reducing cotton's relative price advantage among textile fibers. This added to the day's bearish tone. However, a weaker US dollar provided a counterbalance for dollar-denominated commodities. Meanwhile, a pullback in Chicago grain markets—driven by fading weather-driven rallies—eased competition for cotton acreage. Overall, the macro backdrop remains neutral-to-bullish for cotton.
Outlook
The ICE cotton market is currently in a delicate equilibrium: capped by profit-taking and lower oil prices, yet supported by export growth, technical floors, and weather premiums. The upcoming USDA monthly supply-demand report, due before the July 11 open, will likely be the catalyst that breaks the stalemate. If the report lowers global ending stocks or raises US export estimates, prices could challenge the 82-cent level; conversely, a bearish surprise may test support near 78 cents.