International cotton prices edged higher on July 23, with the ICE December contract settling at 81.21 cents per pound, up 0.1 cent. While the 0.12% gain appears modest, the underlying drivers—crude oil surging past $100 per barrel, mounting weather risks in major producing countries, and weak U.S. export sales—paint a picture of a market caught between competing forces.
Oil's Ripple Effect: Polyester Costs Rise, Cotton Gains Competitiveness
On July 23, Brent crude surpassed $100 per barrel for the first time in nearly two months, triggered by an attack on a Saudi oil tanker in the Red Sea and escalating Middle East tensions. For the textile industry, the impact goes beyond energy bills. Polyester staple fiber, a direct substitute for cotton, relies heavily on crude oil as a raw material. As oil prices surge, polyester becomes more expensive, narrowing the price gap with cotton and making the natural fiber more attractive to spinners. Industry data shows the polyester-cotton spread is shrinking, incentivizing mills to increase cotton ratios in their blends.
Production Concerns: India, Brazil, Pakistan Signal Tighter Supply
While oil-driven sentiment dominates short-term trading, supply-side signals from key producers carry more weight for the medium term. India's cotton sowing has slowed due to adverse weather, raising concerns about the 2025/26 crop. Meanwhile, consultancy Agroconsult forecasts Brazil's cotton output at 4.2 million tonnes, down 1.5% year-on-year, largely due to reduced planted area. More telling is Pakistan's behavior: the country has ordered approximately 206,000 bales from the U.S. and is ramping up purchases from Brazil, reflecting a domestic production shortfall and deepening import dependency ahead of its own harvest. Three major producers signaling tighter supply provides a solid floor under global cotton prices.
Weak U.S. Export Sales: A Bearish Signal Largely Ignored
The USDA's weekly export sales report for the week ending July 16 showed net sales of 51,287 bales for the current season—up 49% from the prior week but down 12% from the four-week average. Sales to China were just 15,475 bales, with zero commitments for the next season. Shipments were more robust at 276,313 bales, up 29% week-on-week, but those to China amounted to only 2,108 bales. The data suggests Chinese buyers are scaling back, likely due to weak domestic demand and high yarn inventories. Yet the market seems to be looking past this near-term negative, focusing instead on the longer-term supply narrative. As Price Futures Group vice president Jack Scoville noted, the weekly sales numbers are not supportive for cotton—implying the trading floor has already shifted its focus to supply risks.
Macro Headwinds: A Strong Dollar and Tech Selloff
Cotton traders cannot ignore the broader macroeconomic backdrop. On July 23, the U.S. dollar strengthened, while the Nasdaq fell over 2% as tech earnings disappointed and rising oil prices stoked inflation fears, pushing bond yields higher. A stronger dollar makes dollar-denominated cotton more expensive for overseas buyers, potentially dampening export demand. However, the oil-polyester substitution effect provides a demand-side cushion. These two forces are likely to keep cotton prices range-bound in the near term.