79.30 cents per pound—that is where the ICE cotton futures December contract closed on July 16, down 2.76% or 2.25 cents. It is the first time in nearly a month that the front-month contract has broken below the psychological 80-cent mark. The immediate trigger was the USDA export sales report released the same day: net sales of U.S. upland cotton for the current marketing year totaled just 34,360 bales for the week ending July 9, the lowest weekly figure of the season. That represents a 48% drop from the previous week and a 63% decline from the four-week average.
Demand-Side Double Whammy: China Halts Purchases, Consumer Spending Shifts
The most glaring weakness in the export data came from China. Net sales to China for the current marketing year were negative 32 bales, indicating cancellations of previous orders. For the next marketing year, net sales to China were zero. The logic behind the pause is straightforward: China is set to launch its national reserve cotton auction next Monday, which will release significant volumes of low-cost inventory into the domestic market, dampening import demand. Keith Brown, chief cotton broker at Keith Brown and Co. in Georgia, noted in the report, "This is the lowest sales volume of the marketing year."
Adding to the bearishness was a signal from U.S. consumer spending. The U.S. Commerce Department reported that June retail sales rose only 0.2% month-on-month, the smallest gain in five months. While overall sales were still up 6.7% year-on-year, the structural problem was clear: apparel sales fell 9% month-on-month. Brown commented that consumers are prioritizing spending on gasoline, fuel, and food, squeezing clothing out of their budgets. Import tariffs and rising prices driven by Middle East tensions are reshaping how American households allocate their spending.
Technical Factors: Inventory and Currency Headwinds
Beyond fundamentals, the technical picture offers little support. ICE data showed that as of July 15, deliverable stocks of No. 2 cotton futures contracts stood at 98,838 bales, down 1,774 bales from the previous day but still at elevated levels. The U.S. dollar index extended its gains on July 16, recovering from near one-month lows, as markets expect the Federal Reserve to hold interest rates steady this month. A stronger dollar makes dollar-denominated cotton more expensive for buyers holding other currencies, further curbing international purchasing appetite.
Supply Chain Transmission: Spot Market Lags Futures
While the futures market has reacted sharply, the spot market has yet to fully adjust. On July 16, the Cotlook A index stood at 90.65 cents per pound, up 70 points from the previous session, diverging from the futures decline. This spread typically indicates that traders are still working through previously booked high-priced orders, but the bearish signal from futures will eventually feed into spot prices. For spinners relying on imported cotton, the next purchasing window may be opening.