79.30 cents per pound — that was the settlement price for ICE's most-active December contract on July 16, a single-day drop of 2.76%. The immediate trigger was the USDA's weekly export sales report: net sales of only 34,360 bales, the lowest of the current marketing year.
Export Data Reveals Demand Gap
The report reflects more than just a weak week. Compared to the previous week, US cotton export sales plummeted 48%; compared to the four-week average, the decline reached 63%. More striking was the absence of Chinese buyers: net sales to China were negative 32 bales, and forward sales for the next marketing year were zero. China has long been one of the largest buyers of US cotton, and this withdrawal signals that the world's largest cotton-consuming market is stepping back.
At the same time, export shipments are slowing. Weekly shipments totaled 214,893 bales, down 7% from the prior week and 14% below the four-week average. Shipments to China accounted for only 3,348 bales — a minimal share. These data points point to a single conclusion: overseas textile mills' restocking appetite is rapidly cooling.
US Consumption Data Confirms Weak Apparel Demand
The demand pressures are not limited to exports. The US Commerce Department reported June retail sales rose only 0.2% month-over-month, the smallest gain in five months. Although year-over-year growth was still 6.7%, the gains were driven by motor vehicles and online spending. Apparel sales fell 9% month-over-month.
This means US consumers are shifting spending from clothing to essentials like gasoline and food. For textile and garment producers in China, Vietnam, and Bangladesh that rely on the US market, this is a warning signal. Structural shifts in end-consumption will propagate up the supply chain, ultimately suppressing procurement of raw materials like cotton.
China's Reserve Cotton Auction: The Other Shoe to Drop
Developments in China are adding to short-term uncertainty. China will launch a state reserve cotton auction on Monday, releasing cotton from its strategic stockpile. Historically, such auctions are initiated when prices are high or supply is tight, aiming to stabilize raw material costs for textile mills.
But the timing of this auction has divided market opinion. On one hand, domestic mills facing weak orders and thin margins could benefit from lower-cost cotton. On the other hand, the auction increases supply, potentially putting downward pressure on both domestic and international cotton prices. For traders holding US cotton inventories, this makes destocking more difficult.
Other Market Factors and Inventory Signals
At the macro level, the US dollar index continues to strengthen, recovering from near one-month lows, which weighs on dollar-denominated cotton prices. ICE data shows certified cotton stocks at 98,838 bales as of July 15, down from the previous day but still at relatively ample levels.
CBOT wheat futures remain elevated, with the Russia-Ukraine conflict continuing to disrupt global grain supply chains. While cotton and wheat have limited direct correlation, high grain prices indirectly affect US cotton acreage expectations — a variable to watch in the next planting report.
Short-Term Outlook and Recommendations
Overall, the cotton market is caught between weakening demand and rising supply expectations. If US export sales do not pick up in coming weeks, ICE cotton could test support at 75 cents per pound. The transaction prices and clearance rates from China's reserve auction will be key indicators of domestic market sentiment.