U.S. cotton exports suffered a sharp decline, dragging ICE cotton futures down 3.6% for the week ending July 17. The most-active December contract settled at 78.63 cents per pound, pressured by weak demand and profit-taking.
Export Data Hits Marketing-Year Low
The USDA weekly export sales report showed net sales of upland cotton for the current marketing year were only 34,360 bales for the week ending July 9, the lowest level of the season. This represented a 48% drop from the previous week and a 63% decline from the prior four-week average. Net sales to China were negative 32 bales, indicating weak buying interest from the world's largest textile producer. Next marketing year sales were just 4,075 bales, well below expectations.
Shipment data was also disappointing. Total exports reached 214,893 bales, down 7% from the prior week and 14% below the four-week average. Shipments to China were only 3,348 bales, reflecting a slowdown in actual cotton consumption.
Market Sentiment and Fund Positioning
StoneX risk management consultant noted that Friday's decline was driven by speculative traders liquidating positions ahead of the weekend, rather than any specific news. Cotton had already fallen 3% on Thursday, and after breaking technical support levels, long positions were eager to take profits. Meanwhile, the U.S. dollar index edged higher, making dollar-denominated cotton more expensive for overseas buyers and dampening demand.
Notably, ICE deliverable stocks for No. 2 cotton futures remained flat at 98,838 bales, indicating that the price decline was more about deteriorating demand expectations than supply pressure.
External Market Divergence: Oil Surge vs. Weather Uncertainty
Despite the bearish fundamentals, external markets offered some support. International oil prices surged over 4% on July 17, hitting a one-month high. Escalating conflict between the U.S. and Iran in the Gulf region, combined with restricted passage through the Strait of Hormuz and potential closure of Red Sea shipping lanes, fueled supply disruption fears. Higher oil prices typically lift the cost of synthetic fiber alternatives, indirectly supporting cotton.
Weather remains another variable. Forecasts call for some rainfall in cotton-growing regions, which could ease drought concerns, though other areas still face challenges, leaving yield uncertainty.
Implications for the Supply Chain
For textile mills, weak U.S. cotton exports suggest near-term price pressure, potentially opening a buying window. However, a stronger dollar increases actual import costs, requiring buyers to hedge currency risk. The Cotlook A Index fell 225 points to 88.40 cents per pound, reflecting spot market weakness, though the decline was smaller than futures, indicating basis strength.
From China's perspective, lower cotton prices help reduce raw material costs, but the recovery of downstream orders remains key. If apparel export demand stays sluggish, price declines may not translate into higher purchasing volumes.