The US cotton market is experiencing a classic tug-of-war: persistent heat in key growing regions has pushed crop quality ratings down for two consecutive weeks, while the USDA's latest WASDE report raised production estimates, reinforcing expectations of ample global supply. This conflicting signals kept ICE cotton futures in a narrow range, with the December contract settling at 81.51 cents/lb, down just 0.03 cents from the previous session.
Weather Premium: Texas Heat Becomes Key Short-Term Variable
As of the week ending July 12, US cotton good-to-excellent ratings fell to 44%, down from 46% the prior week and well below 54% a year ago. This decline is largely attributed to persistent high temperatures in the Southern Plains, especially West Texas, the largest cotton-producing region in the US. The vice president of Price Futures Group noted that the hot weather in the Great Plains provided major support for cotton prices that day.
Although the decline in quality ratings is not drastic, the year-over-year gap has reached 10 percentage points. If the heat persists through the critical boll-setting period in August, the risk of actual yield downgrades will rise significantly. The market is currently highly sensitive to weather, and any forecast of rain or worsening drought could trigger short-term price spikes.
Supply-Demand Fundamentals: USDA Report Sends Bearish Signal
Offsetting the weather factor is the USDA's July WASDE report, which raised 2026/27 US production by 400,000 bales to 13.7 million bales and increased global supply estimates by 300,000 bales. This means even if yield expectations are lowered, global inventories will remain ample.
As of July 10, ICE certified cotton stocks stood at 127,127 bales, down from 158,607 bales the previous week. The decline in stocks has somewhat alleviated delivery pressure, but the overall picture of ample supply remains unchanged. For buyers, chasing prices at current levels requires caution, as forward contracts still face downward pressure from higher production estimates.
External Variable: Surging Oil Prices Indirectly Support Cotton
Geopolitical tensions in the Middle East have unexpectedly become a 'hidden driver' for the cotton market. The US announcement of a renewed blockade on Iranian ports reignited concerns over energy transport through the Strait of Hormuz, sending oil prices up 9% in a single day. Higher oil prices directly raise production costs for polyester, a substitute for cotton, thereby strengthening cotton's relative competitiveness among textile raw materials.
However, this transmission effect has a lag, and oil price volatility itself is highly uncertain. Once the situation eases, cotton may lose this external support. Meanwhile, a slightly stronger US dollar posed a modest headwind for dollar-denominated cotton, but the impact was limited.
Market Outlook: Short-Term Volatility, Medium-Term Focus on Weather and Exports
In summary, the US cotton market will likely maintain a tug-of-war between 'weather premium' and 'ample supply' in the short term. ICE cotton has strong support around 81 cents/lb, but upside is capped by higher production expectations.
- Key observation point: The August USDA monthly report, which may incorporate lower yield estimates if quality ratings continue to fall.
- Export data: If US cotton export commitments remain sluggish, it will further cap price recovery.
- Weather evolution: August rainfall in Texas will be a core variable determining final output.