79.30 cents per pound—that was the settlement price for ICE December cotton on July 16, a single-day drop of 2.76%, the largest in nearly a month. The sell-off was triggered by the latest USDA weekly export sales report, which exposed deep demand weakness: net sales of US cotton for the week reached just 34,360 bales, the lowest of the marketing year.
Export Data and Demand Structure
USDA data for the week ending July 9 showed current marketing-year net sales of 34,360 bales, down 48% from the previous week and 63% below the four-week average. Net sales to China were negative—a reduction of 32 bales—indicating order cancellations. Forward sales for the next marketing year were equally weak, with zero net sales to China.
Export shipments were also sluggish at 214,893 bales, down 7% week-on-week and 14% below the four-week average. Shipments to China totaled just 3,348 bales. The persistent weakness reflects that global textile end-demand has yet to meaningfully recover, with China, the largest buyer, showing notably reduced purchasing appetite.
China's Reserve Auction and Market Expectations
Another key variable is China's upcoming national reserve cotton auction, set to begin next Monday. Keith Brown, chief cotton broker at Keith Brown and Co. in Georgia, noted that China will release cotton from state reserves, further curbing near-term demand expectations for US cotton.
Historically, China's reserve releases increase domestic supply and reduce reliance on imports, affecting ICE futures. With international cotton prices relatively high, the auction may accelerate import substitution, creating structural headwinds for US cotton.
US Retail Data and Apparel Disconnect
US Commerce Department data on July 16 showed June retail sales up 0.2% month-on-month, the smallest gain in five months, though still up 6.7% year-on-year. However, the structural issue is glaring: apparel sales fell 9% month-on-month, as consumers prioritized gasoline, fuel, and food over clothing. Keith Brown commented that consumers are allocating budgets to necessities rather than apparel.
The sharp monthly decline in apparel retail suggests the demand transmission chain upstream to fabrics and cotton is tightening. For textile exporters targeting the US market, this signals that the destocking cycle may extend.
Other Market Factors
The US dollar index held gains on July 16, recovering from near one-month lows, as markets expect the Fed to hold rates steady this month. A stronger dollar adds pressure on dollar-denominated cotton. Meanwhile, ICE deliverable No. 2 cotton stocks fell to 98,838 bales from 100,612 the previous day, a minor decline that did not reverse the price weakness.
CBOT wheat futures traded at elevated levels, with geopolitical factors supporting agricultural commodity prices overall, but this failed to offset cotton's bearish fundamentals.
Near-Term Outlook and Trading Logic
In summary, US cotton faces triple pressure: export sales at a marketing-year low, China's upcoming reserve auction, and weak US apparel retail data. Near-term prices are likely to trade in a 78-82 cents/lb range. A meaningful upside breakout would require concrete demand improvement, such as renewed Chinese buying or US apparel inventory bottoming.
For textile chain participants, now is the time to manage raw material inventory cautiously, avoiding overstocking during a downtrend. Focus on next week's Chinese reserve auction results—they will be key to gauging the import substitution effect.