The 80-cent-per-pound mark once again became the focal point of a tug-of-war between bulls and bears. On July 9, ICE cotton futures for the most-active December contract settled at 80.63 cents/lb, down 0.05% from the previous session. This marked the second consecutive decline, despite a 36% week-on-week increase in USDA weekly export sales. The market appeared more concerned about the safety of profits accumulated during the prior rally.
From a capital flow perspective, analysts at StoneX noted that speculators chose to take profits after Tuesday's sharp 3.8% surge, leading to a modest capital outflow. This short-term profit-taking does not necessarily signal a trend reversal—technically, the 40-day moving average provided effective support, with prices bouncing off that level to recover some intraday losses. For textile companies, the current market exhibits a classic 'strong reality, weak expectations' pattern: the spot Cotlook A index stood at 89.75 cents/lb, significantly higher than futures, indicating strong upstream price support, while forward contracts face uncertainty.
Substitute Pressure and Weather Variables
Lower oil prices were another key factor weighing on cotton. On July 9, international crude oil prices fell about 2%, directly reducing the production cost of polyester fiber, a substitute for cotton. When chemical fibers become more competitive, spinning mills tend to increase polyester usage in their raw material mix, thereby dampening cotton demand. Mill owners and traders need to closely monitor the linkage between oil prices and the polyester chain; if oil remains weak, cotton's substitution effect will become more pronounced.
On the weather front, a medium- to long-term contradiction is emerging. The U.S. Climate Prediction Center's latest report indicates a 97% probability that El Niño will strengthen by year-end and persist through early spring 2027. For key U.S. cotton-growing regions like Texas, El Niño typically brings more precipitation and humidity, which can boost yields and reduce abandonment rates. This strengthens expectations for a bumper U.S. cotton crop in the 2026/27 season, potentially capping far-month contracts. However, in the near term, weather premiums have not fully dissipated, and the market awaits the USDA's monthly supply-demand report for further direction.
Structural Signals in Export Data
The USDA weekly export sales report appeared strong on the surface, but a closer look reveals caution. 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, but sales to China were only 3,294 bales, accounting for less than 5% of the total. Shipment data similarly showed that exports to China were only 1,645 bales, far below shipments to traditional buyers such as Vietnam and Pakistan. This reflects that Chinese buyers remain on the sidelines at current price levels, with significantly slowed procurement.
For domestic textile companies reliant on U.S. cotton imports, this signals two things: first, international cotton merchants may face destocking pressure, potentially leading to a loosening of basis levels; second, if Chinese purchases continue to lag, the upside for U.S. cotton prices above the 80-85 cent range will be limited. Meanwhile, net sales for the next marketing year reached 87,000 bales, indicating reasonable forward orders, but the sustainability of these weekly figures needs continuous monitoring.