Strong US cotton export data failed to prevent ICE cotton futures from falling for a second consecutive session. On July 9, the most-active December contract slipped 0.04 cents to settle at 80.63 cents per pound, just a day after hitting its highest level since June 2. Profit-taking dominated the session as speculators locked in gains from the recent rally.
Divergence Between Export Figures and Capital Flows
The latest USDA weekly export sales report, covering the week ending July 2, showed current-season upland cotton net sales of 66,400 bales, up 36% from the previous week. Sales to China accounted for 3,294 bales, while next-season sales reached 87,000 bales. Shipments totaled 230,056 bales, up 5% week-on-week. On the fundamental side, demand remains solid.
However, short-term capital flows outweighed the bullish data. Bailey McHenry, senior vice president at StoneX Consulting, noted that some speculators took profits after the early-week rebound, leading to modest capital outflows. He added that the market found strong technical support at the 40-day moving average, from which prices bounced back, recovering some earlier losses.
Oil Prices and Substitution Cost Dynamics
Falling crude oil prices added pressure. Brent crude dropped about 2% on the day, lowering the production cost expectations for polyester fiber, a key substitute for cotton. For textile mills, cheaper oil widens the price gap between man-made fibers and cotton, potentially shifting procurement preferences. This cross-commodity linkage becomes more pronounced when cotton is at a critical price level.
El Niño Weather: A Supply Signal or Pricing Variable?
The US Climate Prediction Center now projects a 97% probability that El Niño will strengthen by year-end and persist into early spring 2027. For Texas, the key US cotton-growing state, El Niño typically brings more rainfall and moisture, boosting yields and reducing abandonment rates. This suggests a potential supply increase for the 2026/27 marketing year.
Weather effects, however, have a lag. The market's immediate focus is on the USDA monthly supply-demand report due at midnight Beijing time on July 11. Traders are adjusting positions ahead of the report, which partly explains the profit-taking behavior.
Spot Market and Supply Chain Impact
The spot market also softened. The Cotlook A Index fell 50 points to 89.75 cents per pound on July 9. The narrowing spread between domestic and international prices may slow Chinese import buying. For Chinese textile mills, if the upcoming USDA report delivers a bearish surprise, imported cotton prices could have further downside from the current 80-cent level.
Broader Market Linkages
CBOT corn, wheat, and soybean futures also fell for a second day as weather-driven gains faded. While cotton shares some capital flow and weather sentiment with grains, its core fundamentals—export demand and substitution costs—remain the primary drivers.
The US dollar index weakened, which theoretically supports dollar-denominated cotton, but this positive factor was completely offset by profit-taking.