On July 10, ICE cotton futures' most-active December contract settled at 81.54 cents/lb, up 0.91 cents for the day and approximately 5.7% for the week. This rally reflects a direct clash between weather concerns and a bearish supply-demand report. For Chinese textile companies, understanding the underlying logic of this tug-of-war is more critical than tracking daily price moves.
Background
USDA's July supply-demand report raised 2026/27 US cotton production estimates from 13.3 million bales to 13.7 million, and ending stocks from 3.7 million to 4.1 million bales. Global production was also raised by 300,000 bales. This is fundamentally bearish data, and the December contract dipped briefly after the release.
However, the market did not sustain losses. The key variable is weather: a dry forecast for West Texas over the next 10 days, and abnormal monsoon patterns in India. These two major producing regions inject a 'weather premium' into prices. Industry observers note that prices above 80 cents/lb essentially reflect a premium for weather risk.
Industry Impact
Whether the weather premium persists depends on actual weather evolution. West Texas is the core US cotton region; continued drought would threaten yields, potentially forcing USDA to revise production estimates downward. India's abnormal monsoon directly impacts its cotton output, disrupting global supply-demand balances.
On the other hand, the bearish fundamentals remain. Higher US ending stocks suggest a looser supply scenario in the medium term. Meanwhile, downstream demand shows no clear recovery—major textile countries like China and Vietnam have low operating rates, with procurement limited to immediate needs.
This means the market is experiencing a tug-of-war between 'near-term weather premium' and 'longer-term loose supply'. For textile companies, price volatility will increase significantly, and the risk of one-sided bets is high.