U.S. cotton futures saw a second consecutive session of declines after a strong rally earlier this week, as profit-taking dominated trading. On July 9, the ICE December contract settled at 80.63 cents per pound, down 0.05% from the previous session. Despite robust weekly export sales data from the USDA, market fund flows indicated speculative capital was exiting positions in stages.
Background
The December contract surged 3.8% on Tuesday, hitting its highest level since June 2, driven by technical buying and short covering. However, the following two sessions reversed sentiment as traders locked in profits. StoneX senior vice president Bailey McHenry noted a slight outflow of funds, with some speculators taking profits after the rebound. Notably, the 40-day moving average provided solid technical support, with prices bouncing off that level and recovering some earlier losses, suggesting underlying buying interest remains.
Industry Impact
Pressure from external markets cannot be ignored. Oil prices fell about 2% after earlier gains, directly lowering production costs for polyester fiber—a cotton substitute—and indirectly weighing on cotton prices. Investors are assessing the impact of escalating U.S.-Iran tensions on shipping through the Strait of Hormuz, meaning short-term oil price volatility will continue to affect cost expectations across the cotton-textile chain.
U.S. cotton export data remains the brightest spot in fundamentals. The USDA's weekly export sales report for the week ending July 2 showed net sales of 66,400 running bales for the current marketing year, up 36% from the previous week, including 3,294 bales to China. Net sales for the next marketing year reached 86,971 bales. Shipments totaled 230,056 bales, up 5% from the prior week but 14% below the four-week average. This data suggests that despite uneven global consumption recovery, rigid demand for U.S. cotton persists, especially in forward sales for the new crop year.
Weather is becoming a key variable influencing forward prices. The U.S. Climate Prediction Center stated that El Niño will strengthen by year-end, with a 97% probability of persisting through early spring 2027. For key southern growing regions like Texas, El Niño typically brings more precipitation and humidity, which can boost yields and reduce abandonment rates. This implies potential upward revisions to 2026/27 U.S. cotton production estimates, creating downward pressure on deferred contracts.
The linkage with related grain markets is also noteworthy. CBOT corn, wheat, and soybean futures fell for a second consecutive day as weather-driven gains faded. Traders are awaiting the USDA's monthly supply-demand report, due at midnight Beijing time on Saturday, which will provide new guidance on global cotton supply and demand balances.