79.30 cents per pound — that was the settlement price for the ICE December cotton contract on July 16, a 2.76% single-day drop. While it looks like a technical correction, the real story lies in a triple whammy: US cotton export sales hitting a marketing-year low, China's impending reserve cotton auction, and weaker-than-expected US apparel retail data.
Export sales plunge to seasonal low as China steps back
The USDA's weekly export sales report for the week ending July 9 showed current-year net commitments of just 34,360 bales, down 48% from the previous week and 63% below the four-week average — the lowest of the marketing year. Notably, net sales to China were negative 32 bales, indicating cancellations or returns. Forward sales for the next marketing year were equally sluggish, with zero net sales to China.
This data confirms the assessment of Keith Brown, a cotton broker in Georgia: sales have hit the year's low point. From an industry perspective, China's temporary withdrawal is not an isolated event. Domestic commercial and state reserves are relatively ample, and the upcoming reserve auction will replace import demand with domestic and reserve cotton.
China's reserve auction to ease supply tightness
China National Cotton Reserve Corporation has announced it will launch the 2026 reserve auction on July 19. While the exact volume and floor price are not yet clear, the market generally expects weekly offerings of 30,000-50,000 tons. For international cotton merchants, China's transition from the largest buyer to a short-term supply source directly caps US cotton pricing.
Historically, ICE cotton prices have tended to decline during China's reserve release periods. During the 2013-2015 cycle, US cotton fell from the 90-cent range to around 60 cents. Although current global stocks-to-use ratios are relatively low, the clear policy signal has prompted speculative longs to reduce positions, and ICE fund net long positions have been declining.
US retail data shows apparel consumption weakening
US Commerce Department data on July 16 showed June retail sales rose only 0.2% month-on-month, the smallest gain in five months. Gas station revenues were dragged down by falling gasoline prices, while motor vehicles and online sales showed growth. However, clothing and accessories store sales fell 9% month-on-month, a stark contrast to overall retail.
Keith Brown noted that consumer spending is shifting toward necessities like gasoline and food, squeezing apparel purchases. While June US apparel sales were still up 6.7% year-on-year, the 9% sequential decline signals deteriorating consumer confidence. For the textile industry, weakening end demand will transmit to fabric procurement and yarn orders, further depressing cotton consumption expectations.
Strong dollar and macro uncertainties add pressure
On the macro front, the US dollar index extended gains on July 16, recovering from near one-month lows. Market expectations that the Fed will hold rates steady and the relative resilience of the US economy support the greenback. For cotton trade denominated in dollars, a stronger dollar raises costs for non-US buyers, further curbing export demand.
Additionally, CBOT wheat futures remain elevated amid ongoing Russia-Ukraine tensions, and Middle East geopolitical risks persist. While not directly affecting cotton, these factors influence energy prices and global inflation expectations, indirectly altering textile mills' procurement rhythms. ICE deliverable stocks currently stand at 98,838 bales, down slightly from the previous day but still relatively high, adding physical pressure.
Near-term cotton prices likely to stay weak and volatile
In summary, the three major bearish factors — weak US exports, China's reserve auction, and falling US apparel retail — are unlikely to dissipate in the short term. The December contract has some technical support in the 78-80 cent range, but if China releases large volumes or downstream consumption continues to deteriorate, a break below 78 cents is possible. For domestic Chinese mills, foreign cotton still trades at a premium to Xinjiang cotton and domestic cotton, making imports less attractive.