ICE cotton futures for December settled at 81.54 cents per pound on July 10, up 1.13% on the day and marking a 5.7% weekly gain. The rally above 80 cents was driven not by demand recovery but by two weather variables: an erratic Indian monsoon and a dry 10-day forecast for West Texas, the largest cotton-growing region in the U.S.
USDA Report Reinforces Bearish Supply Outlook
On the same day, the USDA released its July supply/demand report, which painted a different picture. U.S. cotton production for 2026/27 was raised to 13.7 million bales, up 400,000 bales from June. Ending stocks were lifted to 4.1 million bales from 3.7 million. Global supply was also revised up by 300,000 bales.
The report briefly pulled December futures lower, but buying quickly resumed as traders refocused on weather risks. The consensus is that the USDA numbers were largely priced in, and the market's near-term anchor has shifted to crop conditions.
How Much Weather Premium Is Already Priced In?
India's erratic monsoon threatens planting and yields in the world's second-largest cotton producer. West Texas, meanwhile, is entering a critical growth phase with little rain in sight. Together, these factors make the market hypersensitive to any marginal supply disruption.
But at 81 cents, the question is whether the weather premium is already fully reflected. Given the USDA's bearish baseline, a return of rains in Texas or normalization of the Indian monsoon could trigger a rapid correction. The current price appears to be near the upper end of short-term fair value unless actual crop damage materializes.
Grain Market Spillover
Cotton did not rally in isolation. On July 10, CBOT corn rose 1.99%, soybeans gained 0.78%, European wheat surged over 2%, and U.S. soft red winter wheat hit a six-week high—partly on renewed Russia-Ukraine tensions and broader weather concerns across Northern Hemisphere growing regions.
This grain-led sentiment spillover has become a notable feature of cotton trading. Despite a stronger U.S. dollar and slightly lower crude oil, cotton held its gains, suggesting capital is prioritizing supply risk over macro headwinds.
Spot Market: Cotlook A Flat, Mills Cautious
The spot market tells a more restrained story. The Cotlook A Index stood unchanged at 89.75 cents per pound on July 10. While futures were volatile, physical prices showed no movement, indicating limited buying appetite from mills at current levels. Most purchases remain hand-to-mouth.
This divergence—futures hot, spot cold—is often a warning sign of a near-term top. For Chinese textile mills, the narrowing import cost advantage versus domestic cotton calls for more cautious procurement strategies.