Is 80 cents a resistance level or a support level? The ICE cotton futures December contract rose approximately 5.7% over the past week, settling at 81.54 cents per pound on July 10. Behind this price level lies a fierce battle between two forces: on one side, the bearish supply-demand report from the USDA signaling a bumper harvest; on the other, weather disruptions in major producing countries fueling supply concerns.
Supply-Demand Report: Higher Production, But Stock Digestion Remains Uncertain
The USDA July Supply and Demand Report raised the 2026/27 US cotton production estimate from 13.3 million to 13.7 million bales, while the ending stocks estimate increased from 3.7 million to 4.1 million bales. Global cotton supply was also raised by 300,000 bales. On the surface, this is a report pointing to a looser supply-demand balance.
Notably, the USDA kept the global ending stocks estimate unchanged, meaning that the digestion of old-crop stocks offsets the increase in new-crop production. The market had already partially priced in the production increase, so the report only triggered a brief dip. For Chinese textile mills, higher US production implies room for lower import costs in the future, but weather variables are eroding that logic.
Weather Premium: A Drought Transmission Chain from India to Texas
The core driver keeping cotton prices above 80 cents is weather concerns. West Texas is forecast to remain dry for the next 10 days, and this region is the largest cotton-producing area in the US. India's monsoon rains are also running irregularly, casting a shadow over the yield prospects of the world's second-largest cotton producer.
Historically, July and August are critical windows for cotton growth. Any prolonged drought directly affects boll development and final yields. The market's current pricing logic is: if weather risks materialize, 80 cents could become a floor; if rains return to normal, the pressure from a bumper harvest will push prices to test 78 cents or even lower.
External Markets: The Linkage Effect of Grains and Exchange Rates
Cotton is not rising alone. On July 10, corn, soybean, and soybean oil futures all closed higher on the Chicago Board of Trade. European wheat rose over 2%, and US soft red winter wheat hit a six-week high. The broad rally in grains was partly driven by renewed tensions in the Russia-Ukraine conflict and partly resonated with weather concerns.
The US dollar index strengthened on the same day, which is typically bearish for dollar-denominated cotton, but the market did not react negatively, suggesting that weather factors dominate short-term sentiment. Oil prices fell on expectations of the reopening of the Strait of Hormuz, but still posted a weekly gain, meaning the substitution effect between cotton and synthetic fibers via energy costs needs continuous monitoring.
Spot Market: Narrowing Basis Reflects Cautious Procurement
The Cotlook A Index stood at 89.75 cents per pound on July 10, unchanged from the previous day. Spot prices remained stable during the futures rally, indicating that downstream mills' buying interest has not picked up in tandem. A narrowing basis (spot minus futures) often signals that the market holds a consensus on looser forward supply, making aggressive restocking at current levels seem risky.
For China's imported cotton market, the spread between domestic and international prices is worth watching. If ICE cotton remains elevated due to weather premiums while China's Zhengzhou Cotton Futures are constrained by weak demand, the cost advantage of imported cotton will shrink, potentially further curbing the pace of foreign cotton purchases.