On July 8, ICE cotton futures retreated from a one-month high as profit-taking kicked in. The active December contract fell 0.62 cents, or 0.76%, to settle at 80.67 cents per pound. The pullback followed a sharp rally of about 5 cents over the previous seven to eight trading sessions, suggesting the market needed a breather rather than a fundamental reversal.
Event Background
The immediate trigger was concentrated profit-taking. Veteran broker Rogers Varner noted strong resistance around 81.50-82 cents, with mills pulling back as prices rose. Meanwhile, the U.S. dollar index climbed to a one-week high, further weighing on dollar-denominated cotton prices.
However, external markets provided some offset. Crude oil surged nearly 5% after President Trump threatened new strikes against Iran, reigniting concerns over Middle East tensions and potential disruptions to shipping through the Strait of Hormuz. Higher oil prices raise the production cost of polyester, cotton's main substitute, thereby enhancing cotton's relative competitiveness and limiting its downside.
Industry Impact
The market is now caught between conflicting signals. On the supply side, U.S. cotton crop conditions are deteriorating. The latest USDA crop progress report showed the good-to-excellent rate at 46%, down from 48% the prior week and well below last year's 52%. While the squaring rate of 49% is slightly above the five-year average, the worsening quality suggests lower yield potential, posing a long-term supply risk.
On the demand side, clarity awaits two key reports: the weekly export sales report and the USDA's World Agricultural Supply and Demand Estimates (WASDE) report. Both will provide fresh insights into export demand and the global supply-demand balance for the new crop. Traders are generally reducing positions ahead of these releases, amplifying short-term volatility.
For downstream mills, the current price level around 80 cents/lb is moderate but not cheap. If the WASDE report shows declining global stocks or improving consumption, cotton could find renewed upward momentum. Conversely, bearish data could trigger a deeper correction.