ICE cotton futures fell for a second straight session on Thursday, with the most-active December contract settling at 80.63 cents per pound, down 0.05%. The decline came despite strong weekly export sales data, driven by profit-taking after a sharp rally earlier in the week and lower crude oil prices.
Profit-Taking and Oil Pressure
Profit-taking was the primary driver behind the pullback. After a 3.8% surge on Tuesday, speculative funds chose to cash in gains, a typical pattern in the cotton market when no major new bullish catalysts emerge. StoneX senior vice president Bailey McHenry noted that the market saw some capital outflow, though price found support at the 40-day moving average, recovering some early losses.
Crude oil's 2% decline added pressure by lowering the production cost of polyester, a key cotton substitute. This shift could temporarily dampen cotton demand from textile mills. However, the oil impact remains sentiment-driven rather than structural, and the 80-cent level held as a key technical floor.
Strong Export Data Provides Fundamental Anchor
Despite the price retreat, U.S. cotton export data offered a bullish counterpoint. The USDA's weekly report for the week ending July 2 showed net upland cotton sales of 66,400 bales for the current marketing year, up 36% from the previous week. Sales to China totaled 3,294 bales, indicating continued Chinese demand. New-crop sales reached 86,971 bales, suggesting solid forward interest.
Shipments also remained robust at 230,056 bales, up 5% week-on-week. For global buyers, this export resilience means international cotton prices have a demand floor, preventing a sharp collapse in import costs.
El Niño and Long-Term Supply Outlook
Weather is becoming a key variable. The U.S. Climate Prediction Center now forecasts a 97% probability that El Niño will strengthen through year-end and persist into early spring 2027. El Niño typically brings more rainfall and moisture to key growing regions like Texas, potentially boosting yields and lowering abandonment rates.
For procurement teams, this suggests a potential upward revision to 2026/27 U.S. cotton production, reinforcing expectations of a looser supply-demand balance. Buyers may consider delaying new-crop purchases to avoid locking in higher prices.
Macro and Market Linkages
Grain markets also retreated, with corn, wheat, and soybeans falling for a second day as weather-driven gains faded. This reduced cotton's comparative advantage but had limited direct impact. A weaker U.S. dollar provided some support, while strong equity markets signaled healthy risk appetite.
Traders are now awaiting the USDA's monthly supply-demand report, due Saturday. This report will provide updated global balance sheets and is critical for determining medium-term direction. An upward revision to U.S. production could accelerate the current correction, while neutral data may reinforce support at 80 cents.