ICE December cotton settled at 80.63 cents per pound on July 9, down 0.05% from the prior session, marking a second consecutive decline. Although the USDA weekly export sales report showed a 36% increase in current-year upland cotton sales to 66,400 bales, profit-taking after Tuesday's 3.8% rally and lower crude oil prices weighed on the market. StoneX senior vice president Bailey McHenry noted speculative fund outflows following the recent bounce, but added that the 40-day moving average provided technical support, allowing prices to recover some early losses.
Export Strength vs. Profit-Taking
For the week ending July 2, net upland cotton sales for the current marketing year reached 66,400 bales, with China accounting for 3,294 bales. Next-year sales added 87,000 bales, while shipments totaled 230,056 bales, up 5% week-on-week but 14% below the four-week average. The discrepancy between new sales and actual shipments suggests that while demand remains present, buyers are delaying delivery in anticipation of lower prices. China's share of total sales was only about 5%, far below historical peaks, reflecting cautious buying from the world's largest importer.
El Niño Reshapes Supply Outlook
The U.S. Climate Prediction Center reported a 97% probability that El Niño will strengthen by year-end and persist into early spring 2027. For cotton, El Niño typically brings increased rainfall and humidity to Texas, the largest U.S. cotton-producing state. Improved moisture conditions could boost yields and reduce the abandonment rate, which has been elevated due to recent droughts. This supply-side improvement is tempering the bullish impact of strong export data. Traders now expect higher U.S. production in 2026/27 unless extreme weather reverses course.
Oil Decline Lowers Polyester Costs
Crude oil fell about 2% on July 9 amid inflation concerns and global economic slowdown fears. Lower oil prices reduce the production cost of polyester, cotton's primary synthetic substitute. When polyester becomes cheaper, textile mills tend to increase synthetic fiber usage, dampening cotton demand. Additionally, geopolitical tensions in the Middle East—specifically the U.S.-Iran conflict and its impact on the Strait of Hormuz—have added a risk premium to oil. Any de-escalation could push oil lower, further pressuring cotton through the substitution channel.
Spot Market and Macro Context
The Cotlook A Index dropped 50 points to 89.75 cents per pound, reflecting weak buying interest from downstream mills. The U.S. dollar index fell, which is theoretically supportive for dollar-denominated cotton, but broader commodity sentiment was mixed. Chicago corn, wheat, and soybean futures also declined for a second day as weather-driven gains faded. All eyes are now on the USDA monthly supply-demand report due July 10 (Beijing time). This will be the first comprehensive forecast for the 2026/27 global cotton balance sheet, and it will likely set the tone for the next price move. A downward revision to production could reignite the rally; an upward surprise may test the 80-cent support level.