U.S. cotton export data hit the worst record of the current marketing year. For the week ending July 9, net sales of upland cotton for the current year were only 34,360 bales, down 48% from the previous week and 63% below the four-week average. More notably, net sales to China turned negative at minus 32 bales, indicating some cancellations or returns. This signal is particularly striking during the traditional off-season and has directly shaken the bulls' previous optimism about demand.
Demand Side: Export Contraction and Capital Exit Form a Double Hit
Following the release of the export sales data, the ICE cotton futures December contract fell 3% that day and continued to weaken before the weekend, posting a weekly loss of 3.6% to settle at 78.63 cents/lb. A StoneX risk management advisor noted that Friday's decline was more related to speculative traders' liquidation, compounded by weakness in some external markets, with no specific bullish news driving the market higher. This reflects that when fundamentals are weak, capital sentiment can easily turn.
Weekly upland cotton shipments totaled 214,893 bales, down 7% from the previous week and 14% below the four-week average, with shipments to China at just 3,348 bales. The slowdown in shipments suggests that the execution pace of previous orders is decelerating, putting pressure on subsequent inventory reduction. From an industry chain perspective, China, as the world's largest cotton consumer and importer, its marginal changes in purchasing intentions often serve as a bellwether. Negative net sales to China may indicate that downstream textile mills have sufficient raw material inventories, low operating rates, or a wait-and-see attitude toward future prices.
Supply Side: Rainfall Expectations Alleviate Drought Concerns
On the supply side, there was little support. Weather forecasts indicate some rainfall in major U.S. cotton-producing areas, though not heavy, enough to alleviate previous drought concerns in some regions. This suggests that growing conditions for the new crop are normalizing, and production expectations may remain stable or even be slightly raised, further suppressing the rebound space for futures prices.
Meanwhile, the U.S. dollar index edged higher, making dollar-denominated cotton more expensive for overseas buyers, objectively curbing purchasing demand. Although international oil prices surged over 4% due to geopolitical tensions, the transmission effect on the cotton market was limited—rising energy costs have a more direct impact on chemical fiber substitutes, with little obvious boost to cotton prices.
Inventories and Spreads: Spot Prices Follow Futures Lower, Basis Weakens
The spot market came under simultaneous pressure. On July 17, the Cotlook A index stood at 88.40 cents/lb, down 225 points in a single day. Spot prices fell more than futures, causing the basis to weaken, reflecting sluggish actual trading and sellers' eagerness to offload inventory. ICE-certified stocks for No. 2 cotton futures remained at 98,838 bales, unchanged from the previous day, with inventory levels at a medium-high range, exerting implicit pressure on the market.
From a positioning perspective, data as of July 16 showed that speculative net long positions had accumulated significantly earlier. This week's profit-taking and stop-loss liquidation may not yet be over. Unless subsequent export data improves markedly, the pressure from long liquidation will continue. The December contract currently has some technical support around 78 cents/lb, but if it breaks, it could further test the 76-77 cent range.