The weakness in U.S. cotton exports is exceeding expectations. The USDA's latest weekly export sales report shows that for the week ending July 9, net sales of current-crop upland cotton reached only 34,360 bales, the lowest point in the current marketing year. This figure represents a 48% drop from the previous week and a 63% decline from the four-week average, directly triggering a 2.76% single-day drop in the ICE cotton futures December contract, settling at 79.30 cents per pound.
For the textile industry, the signals from this data go far beyond the futures market fluctuations. The sharp decline in U.S. cotton exports essentially reflects a dramatic contraction in purchasing willingness from the world's largest cotton consumer—China. During the reporting period, net purchases of U.S. upland cotton by China were -32 bales, indicating net unwinding, while new-crop forward sales to China were zero. This stands in stark contrast to the massive Chinese purchases during the same period last year.
Reserve Auction and Demand Vacuum
Market focus is shifting from the USDA report to China's upcoming national reserve cotton auction. According to public information, China will begin selling cotton from its state reserves starting next Monday. The direct impact is that in the short term, Chinese textile mills' raw material procurement channels will shift from the international market to domestic reserves, further squeezing the export space for U.S. cotton. Historically, international cotton prices typically experience a 3%-5% downward pressure within 4-6 weeks after the start of reserve auctions. The current ICE cotton price of 79 cents/lb may not have fully priced in this policy shock.
The deeper issue is: why are Chinese mills willing to wait for the reserve auction rather than purchase imported cotton at current levels? The answer may lie in end-consumer demand. The U.S. Commerce Department reported that June retail sales rose only 0.2% month-on-month, the smallest gain in five months. More alarmingly, apparel sales plunged 9% month-on-month, making it one of the worst-performing categories. This indicates that even as overall U.S. consumer spending grows, consumers are shifting budgets toward necessities like gasoline and food, crowding out apparel spending. For Chinese textile exporters, persistent weakness in North American orders is forcing upstream raw material procurement decisions to become more conservative.
Industry Transmission and Price Expectations
From an industry chain transmission perspective, the deterioration in U.S. cotton export data and downstream demand contraction are forming a negative feedback loop. As the world's largest textile consumer market, weak U.S. apparel retail directly reduces purchases of U.S. cotton by mills in Southeast Asia and China. The entry of China's reserve cotton further narrows the trade channel for U.S. cotton. Under this dual pressure, ICE cotton futures positioning has shifted noticeably: as of July 15, deliverable stocks of No. 2 cotton futures at ICE fell to 98,838 bales, down about 1,700 bales from the previous day, indicating long positions are actively reducing risk.
At the same time, the strengthening U.S. dollar is adding additional pressure to cotton prices. On July 16, the dollar index rebounded from near one-month lows. Market expectations that the Federal Reserve will keep interest rates unchanged this month, combined with resilient U.S. economic data, support the dollar. A strong dollar makes dollar-denominated cotton more expensive for holders of other currencies, objectively suppressing non-U.S. demand. For Chinese mills, the fluctuation range of the RMB/USD exchange rate will directly affect the landed cost of imported cotton. With uncertain export order prospects, companies prefer to wait rather than lock in forward supplies.