The Texas sun is scorching cotton fields, yet the futures market barely budged, down just 0.03 cents. On July 13, the ICE December contract settled at 81.51 cents per pound, masking a tug-of-war between accumulating weather premiums and mounting supply pressure.
Weather Premium: Good-to-Excellent Rating Drops to 44%
USDA's weekly crop progress report showed the US cotton good-to-excellent rating fell to 44% as of July 12, down 2 percentage points from the prior week and 10 points below last year's 54%. This is the season's lowest reading, and the downtrend shows no sign of stopping.
The critical production region—Texas's western plains and Southwest—is enduring persistent heat and drought. This area accounts for a significant share of US cotton output, and its condition directly determines final yields. A Price Futures Group vice president noted that hot weather was the key support for cotton prices that day. If effective rainfall does not arrive before August, the rating could drop below 40%, accelerating the weather premium.
Notably, CBOT soybean and corn futures also rose on hot, dry forecasts, indicating this is a systemic event across the US agricultural belt, not isolated to cotton.
Supply Side: USDA Lifts Production Estimate, Capping Gains
Offsetting weather concerns, the USDA July WASDE report raised the 2026/27 US cotton production estimate by 400,000 bales to 13.7 million bales. Global supply was also raised by 300,000 bales. This means even if yields suffer, expanded acreage could keep total output high.
ICE deliverable stocks stood at 127,127 bales as of July 10, down from 158,607 a week earlier but still at a historically elevated level for this time of year. The pace of inventory drawdown is a key window into real market tightness.
For mills and traders, this means upstream players (farmers, ginners) are inclined to hold back on selling amid weather hype, while downstream spinners and fabric mills maintain hand-to-mouth buying under supply looseness. This dynamic has slowed spot transactions, with the Cotlook A index edging up only 95 points to 90.70 cents per pound on July 13, far below the oil price move.
External Variable: Oil Surges 9%, Boosting Polyester Substitution
Escalating Middle East tensions—the US announced a naval blockade covering Iran's entire coastline, ports, and oil terminals—triggered fears over the Strait of Hormuz, sending oil prices up over 9% on July 13. The transmission to cotton is clear: higher oil raises polyester raw material costs (PTA, MEG), making cotton more competitive as a substitute fiber.
However, this effect's durability depends on whether the geopolitical conflict expands. A short-term spike offers limited support; a prolonged embargo could reshape the entire textile cost curve. For now, the market has not fully priced in the latter scenario.
Dollar and Macro: Slight Strength, No Major Headwind
The US dollar index edged higher on the day, but the market viewed its impact on cotton as neutral. A stronger dollar theoretically reduces US cotton export competitiveness, but in a weather-premium-driven market, currency factors carry less weight.
Outlook: Range-Bound at 80-85 Cents, Awaiting Catalyst
In summary, the US cotton market is in a classic 'bull-bear tug-of-war.'
- Bull case: deteriorating ratings → lower yields → production miss → faster inventory drawdown.
- Bear case: USDA has already raised production estimates → expanded acreage offsets yield loss → global supply remains loose.
Short-term prices are likely to oscillate within an 80-85 cents per pound range. A breakout requires one of the following triggers:
1. The August USDA report confirms ratings falling below 40%.
2. Sustained rainfall in Texas extinguishes the weather premium.
3. Middle East tensions ease, and oil retreats.
4. US cotton export sales post an unexpectedly strong week.