ICE cotton futures are locked in a tug-of-war around the 80-cent mark. The December contract edged 0.05% lower to 80.63 cents per pound on July 9, marking a second consecutive decline. Just a day earlier, the contract surged 3.8% to its highest since June 2, but profit-taking quickly emerged, overshadowing the bullish signals from robust export data.
Strong Export Data, but Market Chooses to Cash In
The USDA weekly export sales report for the week ending July 2 showed current-year upland cotton net sales of 66,400 bales, up 36% from the previous week. Next-year sales added 87,000 bales. Shipments totaled 230,056 bales, up 5% week-over-week. Sales to China were modest at just 3,294 bales, with shipments of 1,645 bales, indicating cautious buying from the world's top consumer.
This export strength would normally provide support, but the market focused on short-term capital flows. A StoneX analyst noted that speculative funds concentrated on profit-taking after the early-week rally, weighing on prices. However, technical support at the 40-day moving average helped prices recover some losses.
Weaker Oil Prices vs. El Niño Outlook
Crude oil fell about 2% on the day, directly lowering the production cost of polyester fiber and undermining cotton's competitive edge against synthetic alternatives. This linkage is a recurring theme in textile raw material markets: when oil drops, cotton often follows.
Meanwhile, the U.S. Climate Prediction Center raised the probability of El Niño persisting through early spring 2027 to 97%. For key growing regions like Texas, El Niño typically brings more precipitation and humidity, boosting yields and reducing abandonment rates. This implies a potential supply increase for the 2027/28 U.S. crop, putting pressure on forward contracts.
Grain Market Retreat, Cautious Sentiment
Chicago corn, wheat, and soybean futures fell for a second consecutive session, retreating from one-month highs driven by earlier weather speculation. While the correlation between grains and cotton is less direct than with oil, the overall decline in agricultural risk appetite indirectly dampens fund allocation to cotton.
Traders now await the USDA monthly supply-demand report due Saturday. The market broadly expects the report to raise U.S. production estimates. If actual data exceeds expectations, it could trigger a new wave of selling.
Spot Index Weakens, Spread Narrows
The Cotlook A Index fell 50 points to 89.75 cents per pound on July 9, tracking the futures decline. This reflects still-weak downstream buying appetite. At the current futures price of 80.63 cents, imported cotton costs are approaching domestic Xinjiang cotton prices, narrowing the internal-external spread. This will likely curb import demand.
For Chinese textile mills, current prices are in the low-to-mid range of the past three years, but the recovery in end-user orders remains unclear. Most mills are adopting a hand-to-mouth buying strategy rather than building large inventories.