At 79.30 cents per pound, the ICE December cotton futures contract posted a 2.76% loss on July 16, its steepest single-day drop in a month. The sell-off was triggered by a U.S. export sales report that hit a marketing-year low, highlighting a demand vacuum in the global market.
Weak Export Data Signals Demand Gap
The USDA's weekly export sales report for the week ending July 9 showed net sales of just 34,360 bales for the current marketing year, the lowest level of the season. This represents a 48% drop from the previous week and a 63% decline from the four-week average. Notably, China, the world's largest cotton consumer, reduced its net purchases by 32 bales during the week. For the next marketing year, net sales were a mere 4,075 bales, with zero sales to China.
This data underscores a critical shift: as China prepares to launch its state reserve cotton auction, Chinese mills are holding back on imports, waiting for cheaper domestic supply. Export shipments also fell 7% week-on-week, with shipments to China totaling only 3,348 bales.
Retail Weakness Compounds the Pressure
The export data was not an isolated factor. The U.S. Commerce Department reported June retail sales rose only 0.2% month-on-month, the smallest gain in five months. While overall sales were up 6.7% year-on-year, apparel and accessories sales fell 9% month-on-month. This divergence is striking: consumers are prioritizing spending on gasoline, fuel, and food over clothing.
For the cotton supply chain, this means brand owners and retailers will likely reduce orders, squeezing demand for yarn and fabric. The weak retail data, combined with falling gasoline prices, suggests consumers' disposable income is under pressure.
China's Reserve Auction: A Policy Wildcard
China's announcement to start auctioning state cotton reserves next Monday is the biggest policy variable for the market. Historically, such auctions release cotton at below-market prices to ease cost pressures on textile mills. This typically depresses domestic cotton prices and reduces import demand.
For international traders, this means China's buying appetite will shrink further in the short term. The auction's impact will depend on volume, floor price, and duration. If the floor price is set below current ICE levels, it could drag global prices lower.
Other Market Factors
The U.S. dollar index rose on July 16, recovering from near one-month lows, adding pressure on dollar-denominated cotton. ICE deliverable cotton stocks stood at 98,838 bales, down slightly but still elevated. CBOT wheat futures ended mixed, with profit-taking capping gains but geopolitical risks keeping prices high.