In the first week of August, the ICE December cotton futures contract traded narrowly around 81.5 cents per pound, edging down just 0.03 cents from the previous week. Behind this seemingly calm surface, the US cotton belt—particularly West Texas—is enduring extreme heat with temperatures exceeding 38°C for consecutive days, raising serious concerns about the 2026/27 crop yield.
Heat Wave and Declining Crop Conditions
The USDA's weekly crop progress report showed that as of July 12, the US cotton crop rated good-to-excellent stood at only 44%, down 2 percentage points from the prior week and a full 10 points lower than the same period last year. This continuous deterioration in quality ratings directly threatens yield potential. West Texas cotton is entering the critical boll-setting stage, and prolonged heat and drought will reduce boll weight and increase shedding rates. Analysts at Price Futures Group noted that extreme weather in the Great Plains has become the primary support for cotton prices.
Meanwhile, ICE certified stocks plummeted from 158,607 bales on July 10 to 127,127 bales, a 20% decline. This rapid drawdown indicates that spot demand for high-grade cotton is absorbing existing warrants, further limiting downside risk for futures.
USDA Report and Oil Prices Pull in Opposite Directions
Just as weather concerns emerged, the USDA's July WASDE report raised US 2026/27 production by 400,000 bales to 13.70 million, with global supply up 300,000 bales. This bullish supply outlook directly offsets the weather-induced production loss, intensifying the tug-of-war in the market.
Another wildcard is crude oil. Escalating US-Iran maritime tensions sent Brent crude surging over 9% to a one-month high. Higher oil prices raise production costs for polyester, cotton's main synthetic substitute, improving cotton's relative competitiveness. For spinners, if cotton holds near 81 cents while polyester staple fiber costs rise, the cotton-polyester price gap will narrow, potentially shifting some orders back to cotton yarn.
A Stronger Dollar and Export Competitiveness
The US dollar index edged higher during the reporting period, but analysts believe its impact on cotton prices has been muted. However, for Chinese importers paying in yuan, a stronger dollar means higher landed costs. The Cotlook A index rose 95 points to 90.70 cents per pound, narrowing the spread between imported cotton and Xinjiang cotton to within RMB 1,000 per ton. At this level, Chinese mills may reduce import purchases and increase domestic cotton consumption.
Transmission to the Chinese Textile Chain
Reduced US crop expectations and higher import costs will first hit the raw material structure of high-count and combed yarn mills that rely on US cotton. These mills should prepare for potential price spikes in Q4 arrivals. On the other hand, higher oil prices will push up polyester feedstock costs, altering spinners' current raw material mix decisions.
The downstream weaving sector remains in the traditional off-season, with gray fabric inventories high and end-user orders still weak. If cotton stays in the 81-83 cent range, mills will likely maintain hand-to-mouth buying rather than building inventories.
Near-Term Price Range and Key Triggers
In summary, the ICE December contract has strong support at 80 cents, underpinned by weather premium, falling stocks, and rising oil. Upside resistance comes from the USDA's higher production estimate and a stronger dollar; a breakout above 83 cents requires fresh weather catalysts or geopolitical escalation. The market's next focus will be the August USDA supply-demand report for updated crop condition data and whether US-Iran tensions continue to lift energy costs.