80.63 cents per pound — that was the settlement price for the ICE cotton December contract on July 9, down just 0.04 cents or 0.05% from the previous session. But the second consecutive day of declines has already put bulls on alert, especially after the same contract surged 3.8% earlier in the week to hit its highest level since June 2, triggering a wave of profit-taking.
Profit-Taking and Lower Oil Prices Form a Double Squeeze
StoneX Consulting Senior Vice President Bailey McHenry noted in post-market analysis that there was a modest outflow of funds from the market, with speculators choosing to cash in after the earlier rally. This sentiment was confirmed on the technical front: the 40-day moving average provided fairly strong support, allowing prices to bounce back and recover some of the earlier losses, but the upward momentum was clearly lacking.
More direct pressure came from the energy side. International oil prices fell about 2% on the day, as investor concerns over inflation and the global economic outlook weighed on crude. Lower oil prices directly reduce the production cost of polyester fiber, a substitute for cotton, thereby weakening cotton's relative competitiveness. For textile mills, this means the economic calculus for raw material substitution is shifting, and this effect will be amplified further as polyester capacity continues to expand.
Strong Export Data but Unable to Offset Short-Term Selling Pressure
The USDA's weekly export sales report for the week ended July 2 was actually not bad. Net sales of upland cotton for the current marketing year totaled 66,400 running bales, up 36% from the previous week; net sales for the next marketing year reached 86,971 bales. Shipments of 230,056 bales were up 5% week-on-week. Among them, net sales to China for the current year were 3,294 bales, with shipments of 1,645 bales.
For buyers, these data send two signals. First, U.S. cotton remains competitive in the global market, especially with active forward sales for the new crop. Second, Chinese buyer participation remains low, with both net sales and shipments at modest levels, closely tied to the pace of quota issuance and reserve cotton auction policies at home. The 'bright spot' in export data is more about restocking demand from non-Chinese markets.
El Niño Outlook Extended, Long-Term Supply Uncertain
A new assessment from the U.S. Climate Prediction Center deserves close attention from the industry: there is a 97% probability that El Niño will strengthen by the end of the year and persist through early 2027. This means that for nearly three years to come, major cotton-producing regions globally will be under the influence of this climate pattern.
For U.S. cotton, El Niño typically brings more precipitation and moisture to key growing areas such as Texas, which can boost yields and reduce abandonment rates. In other words, the production outlook for the 2025/26 U.S. crop may be revised upward, putting potential pressure on deferred contracts. On the other hand, Southern Hemisphere producers like Brazil and Australia may also face abnormal rainfall under El Niño, with regional impacts varying. Cotton traders need to reassess the origin mix risk in their forward purchasing.