Cotton fields in the United States are enduring an unusual heat wave. The latest weekly crop progress report shows that the US cotton quality rating has dropped from 46% to 44%, far below the 54% recorded a year ago. This means that in West Texas—the region accounting for a significant share of national output—persistent high temperatures and low rainfall are rapidly narrowing yield expectations.
Meanwhile, the ICE December cotton futures contract edged down only 0.03 cents to close at 81.51 cents per pound. This narrow price range, despite deteriorating fundamentals, reflects a deep tug-of-war between bearish supply upgrades and bullish weather risks. The USDA raised its 2026/27 US cotton production forecast by 400,000 bales to 13.7 million, while global supply was increased by 300,000 bales.
Contradiction Between Weather Damage and Supply Upgrades
The USDA’s July WASDE report raised new-crop US production by 400,000 bales month-over-month, a stark contrast to the declining quality ratings. Typically, falling quality ratings trigger concerns over harvested acreage and yields, pushing prices higher. But the USDA’s optimistic supply estimate has dampened bullish sentiment.
Historically, mid-July to August is critical for cotton growth. If the Texas heat persists, quality ratings could fall below 40%, forcing the USDA to lower its output forecast in August, potentially triggering a catch-up rally. For textile buyers, the current 81 cents/lb level may represent a near-term floor.
Geopolitical Tensions Raise Polyester Costs
Cotton prices are also receiving support from an unexpected source—the Middle East. The US announced a naval blockade covering Iran’s entire coastline and oil terminals, pushing global oil prices up 9% in a single day. Higher crude oil means higher production costs for polyester fiber.
In textile applications, polyester is the primary substitute for cotton. When polyester prices rise due to oil spikes, spinners and fabric mills reassess their blending ratios and tend to increase cotton usage. This substitution effect provides an additional price floor for cotton on the demand side.
It is worth noting that the US-Iran conflict remains highly uncertain. If the blockade continues or escalates, oil could hit new highs for the year, forcing polyester staple fiber prices to follow suit and further enhancing cotton’s cost competitiveness.
Inventory and Exchange Rates: Short-Term Distractions
ICE deliverable cotton stocks fell to 127,127 bales on July 10, down about 30,000 bales from the prior week. While declining stocks are often interpreted as improving physical demand, the current period straddles the old and new crop years, so some inventory may have shifted to commercial positions, limiting its price signaling power.
The US dollar index edged higher, creating mild headwinds for dollar-denominated cotton. However, as analysts note, current FX volatility is not large enough to override the core drivers—weather and geopolitics. For import traders dealing in foreign currencies, it is advisable to monitor periodic dollar strength and use forward contracts to hedge exchange rate risks.