ICE cotton futures fell sharply on July 16, with the December contract dropping 2.76% to settle at 79.30 cents per pound. The decline was triggered by the USDA export sales report, which showed net sales of only 34,360 bales for the current marketing year—the lowest weekly total of the season. This represents a 48% drop from the previous week and a 63% decline from the four-week average.
China's role in this downturn is particularly striking. For the week ending July 9, net sales to China were negative by 32 bales, indicating that some previous orders were canceled. As the world's largest cotton importer, China's absence from the market is a clear bearish signal for US cotton exporters.
Shifting Consumer Spending Patterns
The weakness in cotton demand is not an isolated phenomenon. US retail sales data for June showed a 9% month-on-month decline in apparel spending, even as overall retail sales grew 0.2% month-on-month and 6.7% year-on-year. Consumers are reallocating their budgets toward necessities like gasoline and food, squeezing demand for clothing and, by extension, for cotton fiber.
Although economists have revised up their Q2 GDP forecasts due to stronger auto sales and online spending, the apparel sector's contraction suggests that the textile supply chain is not benefiting from the broader economic resilience.
China's Reserve Cotton Auction Reshapes Import Outlook
China is set to launch its state reserve cotton auction next Monday, releasing stocks from its strategic reserves. This policy move has dual implications for the global market: it will increase domestic supply and reduce short-term reliance on imported cotton, while the auction's floor price and transaction results will serve as a new benchmark that could drag down import price expectations.
Georgia-based cotton broker Keith Brown noted that US export sales have already hit a marketing-year low, and the upcoming auction will only reinforce buyers' wait-and-see attitude. For US merchants dependent on the Chinese market, the next few weeks could bring further weakness in export data.
Other Market Factors
The US dollar index strengthened on Thursday, recovering from near one-month lows, adding pressure on dollar-denominated cotton futures. Market expectations that the Fed will hold rates steady this month, coupled with the resilient US economy, supported the greenback.
CBOT wheat futures traded mixed, with the most-active contract edging lower on profit-taking, though prices remained elevated due to the Russia-Ukraine conflict. ICE deliverable cotton stocks fell to 98,838 bales from 100,612 bales the previous day, but the inventory decline was insufficient to offset the bearish demand signals.
The Cotlook A Index rose 70 points to 90.65 cents per pound, highlighting a divergence between the futures and physical markets. The current price decline appears to be driven more by speculative selling in the futures market than by a sudden deterioration in physical fundamentals.