US cotton export sales have plunged to the lowest level of the current marketing year, compounded by a 9% month-on-month decline in US apparel retail sales. ICE cotton futures for December fell nearly 3% to settle at 79.30 cents per pound, approaching the lower bound of the three-month trading range. Market sentiment is shifting from cautious to bearish.
Export Data: Chinese Buyers Exit, Total Volume Collapses
The USDA's latest export sales report for the week ending July 9 shows current-year US cotton net sales of just 34,360 bales, down 48% from the previous week and 63% below the four-week average. This is not only the lowest point of the season but also reflects a fundamental shift in buying behavior from China, the world's largest cotton consumer. During the reporting period, China recorded a net reduction of 32 bales, and forward sales for the next marketing year to China were zero.
Shipment data is equally concerning. Total shipments reached 214,893 bales, down 7% week-on-week and 14% below the four-week average. Shipments to China were a mere 3,348 bales. This simultaneous decline in both new sales and shipments is rare even during periods of trade friction.
Consumer Demand Weakens, Inventory Pressure Mounts
The US Commerce Department reported that June retail sales rose only 0.2% month-on-month, while apparel and accessories sales fell 9%. This divergence signals that consumer spending is shifting toward necessities like gasoline and food, squeezing the budget for clothing. Keith Brown, chief cotton broker at Keith Brown and Co., noted: 'Consumers are spending on gas and food, not on clothes.'
For Chinese textile exporters, this means the sustainability of overseas orders is in question. Weak US apparel retail will directly reduce demand for fabrics and yarns, ultimately suppressing cotton consumption. Chinese mills are already grappling with high inventories and weak orders. If US end-consumer demand remains soft, the traditional peak season restocking in the second half of the year may fall short of expectations.
China's Reserve Cotton Auction: A Key Price Anchor
The market is closely watching China's upcoming state reserve cotton auction, scheduled to begin next Monday. This is China's first large-scale release of reserve cotton this year. The auction's pricing mechanism, release pace, and transaction results will directly set a short-term anchor for domestic cotton prices.
Historically, reserve auctions tend to exert downward pressure on prices initially, especially now that the spread between domestic and international cotton prices has narrowed. If the floor price is set low, it could accelerate substitution of imported cotton and further depress ICE futures. Conversely, strong bidding and premiums would indicate rigid restocking demand from Chinese mills, potentially providing a floor for international prices.
Macro Headwinds: Strong Dollar and Geopolitical Risks
The US dollar index extended its gains on Thursday, recovering from near one-month lows, supported by expectations that the Fed will hold rates steady and the relative resilience of the US economy. A stronger dollar increases the cost of dollar-denominated cotton for non-US buyers, potentially further curbing demand.
Meanwhile, CBOT wheat futures remain elevated due to ongoing hostilities between Russia and Ukraine. While cotton does not directly compete with grains for acreage, the risk-off sentiment in the broader agricultural commodity complex can spill over into cotton markets via fund flows.