79.30 cents per pound — that was the settlement price for the ICE cotton futures December contract on July 16, a 2.76% drop or 2.25 cents lower. The market is sending a clear signal: demand is collapsing.
The immediate trigger was the latest USDA export sales report. For the week ending July 9, current-year US upland cotton net sales reached only 34,360 bales, the lowest of the marketing year, down 48% from the previous week and 63% below the four-week average. Net sales to China turned negative at -32 bales, indicating cancellations or returns.
China Reserve Sales and Weak Consumption Form Dual Pressure
The bearish factors related to China extend beyond export data. China's national reserve cotton auction is set to begin on Monday (July 19), marking the first release operation for the 2026/27 season. The centralized supply will directly increase domestic availability, substituting import demand. US cotton shipments to China in the same week were only 3,348 bales, already reflecting market expectations.
More worrying for bulls is consumer weakness. The US Commerce Department reported on July 16 that June retail sales rose only 0.2% month-on-month, the smallest gain in five months. While overall sales grew 6.7% year-on-year, the structural problem is clear: apparel sales plunged 9% month-on-month. Georgia-based cotton broker Keith Brown noted that consumers are shifting spending to necessities like gasoline and food, squeezing apparel demand.
Downstream Transmission: From Retail to Mills
The contraction in apparel retail is not an isolated event. In the June data, gas station revenues dragged down the headline figure due to lower gasoline prices, but growth in motor vehicles and online spending shows that purchasing power remains, just reallocated. For the textile industry, this means the order contraction is structural, not temporary.
Along the supply chain, retail pressure is translating into reduced orders and rising inventories for mills and traders. Current US cotton shipments of 214,893 bales were down 7% from the previous week and 14% below the four-week average, confirming weak demand. If China's reserve sales make imported cotton less cost-competitive, US cotton sales pressure may persist until the new crop arrives.
Macro and Cross-Market Disturbances
A stronger dollar is another bearish variable. The ICE dollar index extended gains on July 16, recovering from near one-month lows. A strong dollar makes dollar-denominated cotton more expensive for non-US buyers, further suppressing export demand. Meanwhile, CBOT wheat futures remained elevated due to the Russia-Ukraine conflict, but cotton did not attract similar safe-haven buying, with capital favoring grains.
ICE-certified cotton stocks stood at 98,838 bales as of July 15, down 1,774 bales from the previous day, with slower destocking indicating thin spot market activity.
Outlook: Bearish Short-Term, Focus on China Auction Pace
Overall, cotton prices lack strong support around 79 cents/lb. The reserve auction's floor price, weekly release volume, and transaction rates will be key sentiment drivers over the next two weeks. If auction prices fall below imported cotton parity, foreign cotton demand will be further pressured.
For domestic Chinese textile mills, the prudent strategy is to wait. Reserve cotton may offer cost advantages for several weeks, and import purchases can be postponed until early auction data is clear. Foreign trade firms should watch for exchange rate losses from a stronger dollar and the risk of Southeast Asian buyers renegotiating prices due to lower cotton costs.