ICE cotton futures fell for a second consecutive session, with the most-active December contract settling at 80.63 cents per pound, down just 0.05%. Behind this seemingly flat close lies a tug-of-war between profit-taking and strong export data. The market had rallied 3.8% earlier this week to its highest since June 2, but speculative funds quickly chose to lock in gains, signaling a lack of conviction in further upside.
Exports Shine, Yet Capital Flows Out
The USDA's weekly export sales report for the week ending July 2 showed net upland cotton sales of 66,400 running bales for the current marketing year, up 36% from the previous week. Sales to China totaled 3,294 bales, while net sales for the next marketing year reached 86,971 bales. Shipments hit 230,056 bales. On the surface, demand for U.S. cotton remains solid, especially for the forward crop.
But the market barely reacted. A StoneX senior vice president noted that the day saw modest capital outflows as speculators took profits after the early-week rally. This suggests that the recent price rebound was driven more by sentiment than fundamentals, and selling pressure quickly emerged once the rally ran its course.
Oil and Weather: Two Key Variables
Falling oil prices added indirect pressure on cotton. On July 9, NYMEX crude futures fell about 2%, lowering the production cost of polyester, cotton's synthetic substitute, and weakening cotton's relative competitiveness. The impact of geopolitical tensions on Strait of Hormuz shipping remains under evaluation, and short-term oil volatility will continue to influence the cotton-to-polyester price ratio.
On the weather front, the U.S. Climate Prediction Center expects El Niño to strengthen by year-end, with a 97% probability of persisting into early spring 2027. For key southern growing regions like Texas, El Niño typically brings more rainfall and moisture, which could boost yields and reduce abandonment rates. If this weather outlook materializes, the 2026/27 U.S. crop could be revised higher, putting downward pressure on forward prices.
Market Awaits USDA Monthly Report
Traders are closely watching the USDA's monthly supply-demand report, due out on July 11 Beijing time. Chicago grain markets fell for a second straight day as weather-driven gains faded, dampening overall sentiment. The U.S. dollar index declined on July 9, but that failed to lift dollar-denominated cotton, indicating that internal supply-demand expectations, not macro currency moves, are currently driving the market.
Technically, the 40-day moving average provided some support, with prices bouncing off that level to recover part of the day's losses. However, if the USDA report fails to deliver a clear bullish surprise, cotton prices are likely to trade in a 78-82 cents per pound range in the near term.
Industry Impact and Procurement Strategy
For textile mills, current cotton prices are relatively low, but caution is warranted given the risk of repeated speculative fund flows. While export data is strong, Chinese purchases of just 3,294 bales suggest that downstream demand recovery remains fragile. If the USDA report raises U.S. production estimates, prices could test recent lows, offering a better replenishment window.