The cotton market is undergoing a chain reaction driven by the demand side. On July 16, ICE December futures fell 2.25 cents to settle at 79.30 cents per pound, a drop of nearly 3%. This decline was not an isolated technical correction but the combined result of weak U.S. export data and China's policy expectations.
Export Data Reveals Weak Demand
The latest USDA export sales report showed that for the week ending July 9, net sales of U.S. upland cotton for the current marketing year were only 34,360 bales, the lowest point of the season. This figure was down 48% from the previous week and 63% below the four-week average. More notably, net sales to China were negative 32 bales, indicating Chinese buyers are reducing purchases or even canceling orders.
Forward sales for the next marketing year were equally discouraging. Net sales totaled just 4,075 bales, with zero sales to China. This reflects weak international buying interest for forward cotton, particularly from Chinese buyers who remain on the sidelines. Shipment data confirmed the trend: weekly shipments of 214,893 bales were down 7% week-over-week and 14% below the four-week average; shipments to China were only 3,348 bales, at a relatively low level.
China's Reserve Auction Price Impact
China's announcement to launch its national reserve cotton auction next Monday directly affected market sentiment. The auction means increased domestic supply in the short term, reducing reliance on imports. For international cotton traders, the shift of Chinese buyers from the spot market to state reserves will further pressure U.S. cotton export demand.
Historically, China's reserve auctions have exerted阶段性 downward pressure on international cotton prices. During the 2016 reserve rotation, ICE cotton futures experienced months of low-range volatility. The current price level of 79 cents per pound still has room to fall before the auction begins. For traders holding U.S. cotton inventories, this is not good news.
Negative Signals from U.S. Consumption
U.S. Commerce Department data on June retail sales reinforced pessimistic demand expectations. June retail sales rose only 0.2% month-over-month, the smallest gain in five months. Although year-over-year growth was 6.7%, the pace slowed significantly. More directly, apparel sales fell 9% month-over-month in June, making it one of the worst-performing retail categories.
A Georgia cotton broker noted that consumer spending is shifting to necessities like gasoline and food, squeezing apparel purchases. This reflects persistent U.S. inflation, high gasoline prices, and uncertainty from the Middle East situation. When consumers cut clothing spending, mills' demand for cotton naturally contracts, and pressure from the end-market is transmitted upstream.
Industry Impact: Accelerated Upstream-Downstream Transmission
For Chinese textile mills, lower international cotton prices combined with the domestic reserve auction create a double benefit. Lower raw material costs help ease profit pressure, especially for high-count yarn producers using imported cotton. However, caution is needed: weak global demand could lead to prolonged low cotton prices, affecting next season's planting intentions.
For U.S. cotton farmers, current prices are near the cost of production. If Chinese purchases continue to shrink, U.S. cotton inventory pressure will accumulate into the next crop year. ICE deliverable stocks data showed 98,838 bales as of July 15, down from the previous day but still at a relatively high level.