ICE cotton futures edged down 0.03 cents to settle at 81.51 cents per pound on July 13, but the seemingly flat session masked a three-way tug-of-war: deteriorating U.S. cotton quality, extreme heat in the main growing region, and a 9% oil price surge from Middle East tensions. These three factors are interlinked through cost transmission, substitution competition, and yield expectations, collectively underpinning cotton prices.
Quality Decline: From 'Surplus' to 'Uncertainty'
The USDA's weekly crop progress report showed U.S. cotton good-to-excellent ratings fell to 44% for the week ending July 12, down from 46% the prior week and 54% a year ago—a 10-percentage-point year-on-year drop for two consecutive weeks. For Texas-dominated production, a 44% rating typically signals higher abandonment rates and lower yields.
Yet the USDA's July WASDE report raised 2026/27 U.S. production by 400,000 bales to 13.7 million bales. This contradiction warrants caution: production estimates rely on historical models, while ratings reflect live conditions. If the heat persists, actual output may fall short of official forecasts, potentially reversing the current loose stock expectation.
Heat in Texas: Thermal Stress Transmits to Prices
Price Futures Group's vice president explicitly noted that hot weather across the Great Plains, especially Texas, provided the day's main price support. Texas's western region accounts for over 40% of U.S. cotton output and is experiencing sustained high temperatures with no significant rain forecast for two weeks. Heat stress during flowering can cause boll shedding and shorter fiber length, directly impacting grade and processing yields.
For buyers, this means the 2026/27 U.S. crop may skew toward lower grades, widening premiums for high-quality cotton. Meanwhile, CBOT soybean and corn futures also rose on the same weather concerns, reinforcing the overall bullish sentiment in agricultural commodities.
Oil Surge: Polyester Costs Lift Cotton's Ceiling
On July 13, the U.S. announced a naval blockade of Iranian ports, escalating Middle East conflict and sending oil prices up 9% to a one-month high. Higher oil directly raises production costs for polyester, cotton's main substitute. Historically, every 1% rise in polyester prices boosts cotton's relative competitiveness by 0.5-0.8 percentage points.
This transmission mechanism has been validated: after the 2019 Abqaiq attack, cotton futures gained over 5% in two weeks. If the Strait of Hormuz disruption persists, high oil prices will linger, providing additional support for cotton.
Stocks and FX: Short-Term Noise, Medium-Term Logic
ICE data showed deliverable stocks fell 19.8% to 127,127 bales as of July 10, reducing near-term selling pressure. The dollar index edged up but had limited impact on cotton—as analysts noted, 'the dollar rose only slightly and didn't affect prices much.'
The Cotlook A index rose 95 points to 90.70 cents per pound, indicating spot market eagerness to price in forward supply uncertainty.