US cotton futures edged up 0.37% on July 20, settling at 78.92 cents per pound. This modest gain reflects the direct superimposition of weather risk and geopolitical tension.
Weather and Geopolitics: Dual Supports for Cotton Market
According to the latest USDA crop progress report, as of the week ending July 19, the US cotton good-to-excellent rate stood at only 45%, up slightly by 1 percentage point from the previous week but far below the 57% recorded a year earlier. This indicates a fragile foundation for the new crop. The region has faced persistent forecasts of high temperatures and drought over the past two weeks, keeping market concerns about yield losses alive.
Meanwhile, tensions in the Black Sea region have escalated again. Attacks on grain ports and vessels by Russia and Ukraine pushed wheat futures to a two-year high, while soybeans and corn also rallied. As part of the broader commodity complex, cotton inevitably followed the upward trend of agricultural products. This correlation is not driven by cotton's own supply-demand fundamentals but by collective capital bets on the agricultural sector amid geopolitical instability.
Oil prices supported cotton from another angle. The Houthi group's announcement of a maritime blockade against Saudi Arabia, coupled with uncertainty over US-Iran negotiations, pushed international crude oil up by over 1% in volatile trading. Higher oil prices directly increase the production cost of polyester fiber, making cotton relatively more competitive as a substitute. For textile mills, the price spread between cotton and chemical fibers is becoming an increasingly important factor in procurement decisions.
Cost Pressure Transmits Downstream: How Mills Are Responding
Raw material volatility is accelerating its transmission downstream. For spinning and weaving companies that rely heavily on cotton, prices above 78 cents per pound mean a further increase in the raw material cost ratio. At the same time, the recovery in end-use garment orders remains uneven. While replenishment demand from European and US markets is slowly releasing, price sensitivity is extremely high.
Feedback from industrial clusters in Shandong and Henan provinces indicates that spinning mills are adjusting their product mix, increasing the proportion of blended yarns to offset the profit compression caused by high pure-cotton costs. Meanwhile, the price adjustment cycle for grey fabrics and finished fabrics has shortened significantly, with some small and medium-sized weaving mills now quoting prices on a weekly basis to cope with frequent upstream cotton price fluctuations.
The exchange rate factor also cannot be ignored. The US dollar index strengthened on July 20, meaning that for buyers settling in renminbi, the actual cost of imported cotton is higher than the futures increase. Foreign trade companies need to be more cautious in locking in exchange rate risks when taking orders.