U.S. cotton futures faced renewed selling pressure on Thursday, as profit-taking following an early-week rally outweighed a robust weekly export sales report. The December ICE contract settled at 80.63 cents per pound, down 0.05%, marking the second consecutive session of decline. The market's inability to hold gains despite strong fundamentals highlights the tug-of-war between bullish supply-demand data and bearish macro headwinds.
Export Surge Fails to Sustain Momentum
The U.S. Department of Agriculture's weekly export sales report for the week ended July 2 showed net upland cotton sales of 66,400 running bales for the current season, a 36% increase from the prior week. Among them, sales to China totaled 3,294 bales, signaling a modest pickup in buying interest from the world's largest consumer. Forward sales for the next marketing year reached 86,971 bales, suggesting that long-term demand expectations remain intact. Shipments during the week stood at 230,056 bales, up 5% week-on-week.
Despite these bullish figures, the market retreated as speculators locked in profits after the 3.8% surge earlier in the week, which had pushed prices to their highest since June 2. Analysts noted that the market's inability to absorb positive news reflects lingering caution over the pace of global textile demand recovery. Any price spike now invites quick profit-taking, capping upside momentum.
External Drag: Oil and Grains Weigh
Cotton's decline was part of a broader risk-off move in commodity markets. Crude oil fell about 2% as traders reassessed the impact of Middle East tensions on supply and worried about inflation and economic slowdown. Lower oil prices reduce the production cost of polyester, cotton's main synthetic substitute, eroding cotton's competitive edge.
Chicago grain futures also pulled back for a second day, with corn, wheat, and soybeans retreating from one-month highs driven by weather concerns. The correlation between cotton and grains in fund portfolios meant that profit-taking in grains spilled over into cotton. A weaker U.S. dollar index, normally supportive for dollar-denominated commodities, was overshadowed by broader macroeconomic risk aversion.
El Niño Strengthens: Weather Risk for Texas
The U.S. Climate Prediction Center updated its forecast, placing a 97% probability that El Niño will strengthen by year-end and persist into early spring 2027. For key cotton-growing regions like Texas, El Niño typically brings increased rainfall and soil moisture, which can boost yields and reduce abandonment rates.
This weather outlook is a potential bearish factor for deferred contracts, as better precipitation could lift U.S. cotton production and ease supply concerns. However, excessive rain may also cause flooding or pest outbreaks, so the actual impact remains uncertain. For downstream buyers, the El Niño forecast implies that price volatility will persist until the new crop's condition becomes clearer.
All Eyes on USDA Monthly Report
Traders are now focused on the USDA's monthly World Agricultural Supply and Demand Estimates (WASDE) report, due on July 11. This report will provide the first field-survey-based estimates for 2026/27 U.S. planted acreage and yield, along with updated global ending stocks. Given the current divergence in views on the pace of global cotton consumption recovery, the report's numbers could set the tone for medium-term price direction.
Technically, the December contract found support near its 40-day moving average and bounced back to recoup some early losses. A bullish WASDE report could propel prices toward the 82-cent resistance level, while a neutral or bearish outcome may test the 80-cent psychological support again.