Cotton Struggles at 80 Cents: Strong Export Data vs Profit-Taking, El Niño Emerges as Key Variable

The 80-cent-per-pound mark is proving to be a fierce battleground for bulls and bears. On July 9, the ICE cotton December contract settled at 80.63 cents, down just 0.05%, marking a second consecutive decline. Beneath the surface, two forces are colliding: strong export data on one side, and profit-taking combined with lower crude oil prices on the other.

Strong Exports, But Short-Term Selling Prevails

The USDA weekly export sales report provided fundamental support. For the week ending July 2, net sales of upland cotton for the current marketing year reached 66,400 bales, up 36% week-on-week. More notably, Chinese buyers re-entered the market, with net sales of 3,294 bales to China. While the volume is modest, the signal is significant—Chinese mills are beginning to accept prices around 80 cents. Forward sales for the next marketing year totaled 86,971 bales, suggesting demand is not fading. Shipments of 230,056 bales, though 14% below the four-week average, remain at a healthy level.

Yet the market shrugged off the data. Analysts at StoneX noted speculative funds took profits after Tuesday's 3.8% rally—a classic 'buy the rumor, sell the fact' reaction. Technically, the 40-day moving average provided solid support, with prices bouncing off that level to recover some losses. This indicates underlying buying interest remains, but short-term sentiment has shifted from chasing gains to caution.

Lower Crude Oil: Polyester Substitution Pressure

A 2% drop in crude oil prices added another layer of resistance for cotton. The logic is straightforward: cheaper oil reduces the production cost of polyester, cotton's main synthetic substitute. At prices above 80 cents, mills become more sensitive to input costs. Every $1 drop in oil can shift blending ratios by 1-2 percentage points away from cotton in favor of polyester, especially when end-use demand is tepid.

El Niño: The Wildcard for Late 2026

Weather is emerging as a key market focus. The U.S. Climate Prediction Center now sees a 97% probability that El Niño will strengthen by year-end and persist into early spring 2027. For cotton, El Niño typically brings increased rainfall to key growing regions like Texas, the largest U.S. cotton-producing state. Higher moisture can boost yields and significantly reduce the abandonment rate, which spiked above 30% during recent droughts. If El Niño delivers, the 2026/27 U.S. crop could be larger than currently expected, putting downward pressure on deferred futures.

Awaiting the USDA WASDE Report

Traders are now eyeing the USDA monthly supply-demand report, which will provide the first official estimates for the 2026/27 global balance sheet, including planted area, yield, exports, and ending stocks. The consensus is for a modest build in inventories, but the key variables remain weather and export momentum.

The weaker U.S. dollar provided some support for dollar-denominated cotton, but the impact was limited. While a rally in tech stocks lifted overall risk appetite, commodity markets remain constrained by macroeconomic demand concerns.

For Buyers - At current levels around 80 cents, consider waiting for a dip to 78-79 cents if the USDA report is bearish, then build positions gradually to lock in raw material costs. - Monitor El Niño developments: if Texas rainfall continues to improve, deferred contracts may weaken further, allowing later procurement. - Track Chinese buying: if weekly sales to China sustain, it will form a price floor.

For Exporters - In export quoting, hedge against both cotton price and exchange rate volatility. Lock in raw material costs when cotton is above 80 cents to protect margins. - Watch the polyester-cotton spread: if oil continues to fall, mills may adjust blends, reducing the bargaining power for pure-cotton orders. - For exports to the U.S., note that increased rainfall from El Niño could lower cotton micronaire, affecting suitability for high-count yarns.