ICE cotton futures edged higher on July 27, with the most-active December contract settling at 80.88 cents per pound, up 1.1%. The rebound was driven by two short-term factors: technical buying after Friday's pullback and a slightly weaker US dollar, which made dollar-denominated cotton cheaper for overseas buyers. However, whether this uptrend can sustain depends on deeper fundamental shifts.
US Cotton Growth Conditions Deteriorate, Good-to-Excellent Rating Hits Multi-Year Low
The latest USDA crop progress report shows that as of July 26, US cotton good-to-excellent ratings stood at only 46%, well below last year's 55% and among the lowest in recent years. Squaring rate reached 81% and boll-setting rate 45%, in line with the five-year average, but the low good-to-excellent rating suggests potential yield disappointment. For buyers, this means quality differentiation in the new crop US cotton may widen, and the premium for high-grade cotton deserves attention.
Brazil's Output Forecast Cut, El Niño Becomes Key Variable
StoneX predicted on Monday that Brazil's 2026/27 cotton output would reach 3.83 million tons, down 1.5% from the previous year. Although planted area is expected to expand, El Niño weather is likely to damage yields. This news provided some support to market sentiment, but the reduction is limited and unlikely to change the overall loose global supply-demand balance. For Chinese importers, Brazil's output changes will directly affect the pricing rhythm of bonded-zone spot cargoes.
External Market Volatility Intensifies, Upside for Cotton Prices Limited
Oil prices plunged over 7% on July 27 after the US suspended airstrikes on Iran, raising hopes for resumed shipping through the Strait of Hormuz. Lower crude prices reduce chemical fiber costs, indirectly weakening cotton's competitiveness among textile raw materials. Meanwhile, mixed US stock performance and lingering concerns over potential Fed rate hikes add to macro uncertainty, making the support level around 80 cents per pound for cotton not solid.
Transmission Effects on China's Textile Chain
With international cotton prices hovering at low levels, raw material cost pressure on Chinese cotton spinning mills has eased. However, downstream order recovery remains slow, with yarn and fabric sectors adopting a hand-to-mouth procurement strategy and showing little willingness to build inventories. Low US cotton good-to-excellent ratings may lead to tight supply of high-grade cotton later, while Brazil's output cut expectations could lift forward premiums. Buyers are advised to monitor weather changes before new crop arrivals, especially El Niño's actual impact on Brazil's main producing areas.