Profit-taking is overwhelming the positive signals from US cotton export data. On July 9, ICE cotton futures fell for a second consecutive session, with the December contract settling at 80.63 cents per pound, down 0.05%. Just a day earlier, the contract had hit its highest level since June 2 on technical buying, but bulls quickly chose to cash in gains.
Market Drivers: Capital Outflows and Oil Pressure
A senior analyst at StoneX noted modest capital outflows as speculators locked in profits after the earlier rally, directly weighing on prices. However, strong support near the 40-day moving average helped the market recover some early losses, indicating that buying interest remains below the surface.
Another dampening factor came from crude oil, which fell about 2% on the day. Lower oil prices reduce the production cost of polyester, a key substitute for cotton, indirectly pressuring cotton values. The energy-to-polyester-to-cotton transmission chain has been a clear theme in recent price action.
Export Data: Improvement with Structural Divergence
The USDA's weekly export sales report for the week ended July 2 showed net sales of 66,400 running bales for the current marketing year, up 36% from the prior week. Sales to China were modest at 3,294 bales. For the next marketing year, net sales reached 86,971 bales. Shipments totaled 230,056 bales, up 5% week-on-week but 14% below the four-week average.
The data indicates that US cotton exports are improving, but the growth is primarily driven by non-Chinese buyers, with Chinese purchasing still sluggish. While shipments rebounded week-on-week, they remain below seasonal averages, suggesting logistics have not fully normalized. For textile buyers, this means near-term US cotton supply will rely more on inventory drawdown, and lead times for new orders may lengthen.
Weather Wildcard: El Niño Probability Hits 97%
The US Climate Prediction Center confirmed that El Niño is expected to strengthen by late 2026 and persist into early spring 2027, with a 97% probability. For key US cotton-growing regions like Texas, El Niño typically brings increased rainfall and moisture, which can boost yields and reduce abandonment rates.
The market impact is two-sided: higher production expectations weigh on deferred futures, but excessive rain could delay harvesting or degrade quality, creating a potential support floor. All eyes are now on the USDA's monthly WASDE report, due Saturday at midnight Beijing time, for any adjustments to US production estimates.
Related Markets: Grains Retreat, Dollar Weakens
CBOT corn, wheat, and soybean futures fell for a second day as a weather-driven rally faded from one-month highs. The pullback in grains reduced cotton's relative competitiveness among agricultural commodities. However, a weaker US dollar index provided some support for dollar-denominated cotton.
Overall, the cotton market is caught between conflicting forces: improving exports versus profit-taking, and El Niño yield expectations versus lower oil prices. Near-term direction hinges on how aggressively the USDA revises its supply-demand balance sheet in Saturday's report.