U.S. cotton export sales have collapsed, directly crushing the recovery momentum of ICE cotton futures. In the week ending July 9, net sales of U.S. upland cotton were only 34,360 bales, the lowest for the current marketing year, down 48% from the previous week and 63% below the four-week average. Notably, net sales to China were negative 32 bales, indicating some cancellations or resales.
Export Data and Fund Positioning Resonance
This export data was regarded as a 'seismic' event on the demand side. Not only was the total volume low, but the structure also sent a dangerous signal: new crop forward orders were only 4,075 bales, suggesting extreme caution among overseas mills. Correspondingly, the ICE December contract fell 3.6% for the week, settling at 78.63 cents/lb. A StoneX risk management advisor noted that pre-weekend speculative selling and profit-taking were the main drivers, while the weak sales report amplified market panic.
More notably, as of July 16, ICE deliverable No. 2 cotton stocks stood at 98,838 bales, unchanged from the previous day. High inventories coupled with weak demand mean destocking pressure in the spot market is transmitting to the futures side. For Chinese cotton textile enterprises, a weaker offshore market may reduce import cotton costs, but there is a risk that Zhengzhou cotton futures could follow the decline, squeezing yarn profit margins.
Weather and Geopolitical Dynamics
Despite the bearish fundamentals, the market is not without support. Weather forecasts show some rainfall in U.S. cotton-producing areas, but not enough to alleviate drought conditions, while other planting regions face different challenges. This means new-crop production remains uncertain, providing some floor support for forward prices.
Meanwhile, geopolitical factors are roiling commodity markets. Tensions between Iran and the U.S. have escalated, with restricted passage through the Strait of Hormuz and potential closure of the Red Sea shipping lane. International oil prices surged over 4% to a one-month high. Higher oil prices raise production costs for synthetic fiber substitutes like polyester, indirectly supporting cotton prices—but in the short term, demand-side pessimism clearly outweighs this bullish factor.
Spot Market and Currency Linkage
The spot market weakened in tandem. On July 17, the Cotlook A index fell 225 points to 88.40 cents/lb, reflecting cotton merchants' lack of confidence and proactive price cuts to stimulate sales. The U.S. dollar index edged up, making dollar-denominated cotton more expensive for non-U.S. currency buyers, further dampening purchasing appetite.
From an industry chain perspective, the decline in ICE cotton has already impacted coastal Chinese textile mills through import costs. For mills relying on imported cotton, current offshore prices are near some firms' psychological buying levels, but the extreme weakness in export sales data suggests patience is warranted until clearer bottom signals emerge.