ICE cotton futures for December settled at 79.30 cents per pound on July 16, marking a 2.76% single-day decline and the largest drop in nearly a month. The market signal is clear: US cotton export sales have hit a marketing-year low, and China's upcoming reserve cotton auction adds further pressure to an already fragile supply-demand balance.
Export Data Sounds the Alarm
The USDA export sales report for the week ending July 9 showed current marketing-year upland cotton net sales of only 34,360 bales, the lowest of the 2025/26 season. This represents a 48% drop from the previous week and a 63% decline from the prior four-week average. More tellingly, net sales to China turned negative, with a reduction of 32 bales, and next marketing-year sales to China stood at zero.
What does this mean? Chinese buyers are actively reducing their US cotton purchases, not just waiting passively. Meanwhile, upland cotton shipments totaled 214,893 bales, down 7% from the prior week and 14% below the four-week average. Shipments to China accounted for only 3,348 bales, less than 1.6% of total shipments. The data chain suggests that demand contraction from China has already moved from orders to actual arrivals.
Consumer Weakness Emerges
If export data reflects intermediate demand, the US Commerce Department's June retail sales report points directly to softening end-consumer demand. June retail sales rose only 0.2% month-on-month, the smallest gain in five months. Although year-on-year growth was 6.7%, the structural problem is clear: apparel sales fell 9% month-on-month.
This 9% drop stands out sharply against the broader retail landscape. Gas station revenues were dragged down by falling gasoline prices, but auto and online sales continued to grow. Consumers are squeezing clothing spending and shifting budgets toward necessities like food and fuel. For Chinese textile and apparel exporters reliant on the US market, this means lower-margin orders in the second half of the year, even if volumes hold up.
Reserve Auction Adds Pressure
China's state reserve cotton auction is set to begin on July 19. The timing coincides with deteriorating US export data and weak consumption, creating a triple whammy. The auction will increase domestic spot supply, putting downward pressure on Zhengzhou cotton futures. The reserve floor price will also be a key signal of policy intent.
Notably, ICE deliverable cotton stocks fell from 100,612 bales to 98,838 bales. While declining stocks are typically bullish, in the current context of weak demand and the upcoming Chinese auction, this decline more likely reflects traders' reduced willingness to deliver rather than genuine supply tightness.
Currency and Macro Uncertainty
The US dollar index extended its gains on July 16, rebounding from near one-month lows. Market expectations of a Fed rate hold in July, combined with resilient US economic data, point to continued dollar strength. For Chinese cotton mills that import cotton in dollars and sell finished products in yuan, currency volatility adds significant cost pressure.
Additionally, CBOT wheat futures remain elevated due to Russia-Ukraine tensions, indirectly influencing cotton planting intentions through agricultural commodity linkages. For now, however, macro sentiment is weighing on cotton prices far more than any fundamental support.
Industry Transmission and Strategies
From US exports to the Chinese auction to US retail data, three threads point to the same conclusion: the global cotton market is in a demand confirmation downturn. Impacts vary across the supply chain:
- Ginners and traders: Rising US cotton inventory pressure and increasing basis weakness call for faster spot turnover and avoidance of stockpiling.
- Spinners: The raw material procurement window is open, but chasing prices is not advisable. Lock in low-cost resources in batches and monitor the spread between Zhengzhou and ICE futures for arbitrage hedging opportunities.
- Weavers and garment makers: Order cycles are shortening, with small-lot, quick-turnaround orders becoming the norm. Adopt a low-inventory, high-turnover raw material management model.