ICE cotton futures fell for a second straight session, with the December contract settling at 80.63 cents per pound, down 0.05%. The decline came despite a strong U.S. export sales report, signaling that profit-taking and falling oil prices have overtaken fundamentals as the market's primary drivers.
Export Sales Surge, But Funds Choose to Cash Out
USDA's weekly export sales report for the week ending July 2 showed net sales of 66,400 bales for the current marketing year, a 36% increase from the prior week. New crop sales added another 86,971 bales. However, the market largely ignored the bullish data. StoneX senior vice president Bailey McHenry noted that speculative funds were taking profits after Monday's 3.8% rally, which pushed prices to their highest since June 2. The reluctance of longs to hold positions near recent highs suggests limited upside momentum in the near term.
Falling Oil Prices Weigh on Cotton's Competitiveness
Crude oil dropped about 2% on Thursday, lowering the production cost of polyester fiber—cotton's main synthetic competitor. When oil weakens, mills tend to increase synthetic usage, reducing cotton demand. At current levels around 80 cents, cotton's price advantage over polyester narrows, further dampening buying interest from downstream spinners.
El Niño: A Medium-Term Bullish Factor
The U.S. Climate Prediction Center now gives a 97% probability that El Niño will strengthen by year-end and persist through early spring 2027. For key growing regions like Texas, El Niño typically brings above-average rainfall and humidity, which can boost yields and lower abandonment rates. While this is a supportive factor for the 2026/27 crop, it remains a distant variable that cannot offset immediate financial pressures.
Macro Sentiment and Supply-Demand Dynamics
U.S. equities rallied, with the Nasdaq posting strong gains, but the dollar index weakened. Commodities were mixed: oil and grains both fell as weather-driven rallies faded. Cotton cannot decouple from this macro uncertainty. Market participants now await USDA's monthly supply-demand report, with no clear consensus on whether global ending stocks will be revised higher or lower.
Implications for the Industry
For textile mills, cotton prices are caught between a supportive export backdrop and short-term profit-taking pressure. A break below 80 cents could offer a buying opportunity. Exporters should monitor currency and oil risks when negotiating forward contracts.