US Cotton Rating Slump and Brazil's Production Warning: The Global Cotton Supply-Demand Balance Is Tilting
On July 27, ICE December cotton futures settled at 80.88 cents/lb, up 1.1%. The gain was driven by two forces: technical buying after the previous session's pullback, and a slight decline in the US dollar index, making dollar-denominated cotton more affordable for overseas buyers. A StoneX risk management advisor noted that the market is testing key support levels, suggesting short-term rebound momentum.
Fundamental Signals: US Cotton Rating Continues to Deteriorate
The latest USDA crop progress report shows that as of July 26, the US cotton good-to-excellent rating stood at only 46%, up 1 percentage point from the prior week but far below last year's 55%. Squaring rate reached 81% and boll-setting rate 45%, both slightly below the five-year average. This indicates slow crop development and a poor quality outlook, casting doubt on yield prospects.
From an industry transmission perspective, US cotton serves as a global pricing anchor. A persistently low good-to-excellent rating will directly compress production expectations for the 2026/27 season. For Chinese textile mills that rely heavily on US cotton imports, this means upward pressure on forward procurement costs. While ICE cotton currently oscillates around 80 cents, further deterioration in subsequent reports could push the price center higher.
Brazil Production Warning: El Niño Hits the Pause Button
StoneX released a forecast on the same day, estimating Brazil's 2026/27 cotton output at 3.83 million tonnes, down 1.5% from the previous year. Although planted area continues to expand, the El Niño weather phenomenon is expected to materially damage yields. As the world's second-largest cotton exporter, Brazil's production cut will ease some oversupply concerns but also reshuffle global trade flows.
For Chinese buyers, Brazilian cotton is a key supplement to US supplies. A production cut will push up Brazil's export premium, lifting the entire international cotton price floor. Meanwhile, China's domestic Xinjiang cotton output remains stable, but if the domestic-import price spread narrows or even inverts, import demand will surge, intensifying the global supply-demand tug-of-war.
Short-Term Distractions: Oil Plunge and Weak Exports Form a Hedging Pair
On the same day, international oil prices plunged over 7%, driven by the US suspending airstrikes on Iran, raising hopes for a resumption of shipping through the Strait of Hormuz. Lower oil prices reduce the cost of chemical fiber raw materials, making polyester staple fiber more price-competitive and putting short-term pressure on cotton. Additionally, last Friday ICE cotton fell 1.5% on weak export sales data, indicating demand has not kept pace.
However, a weaker dollar provides a floor for cotton prices. A declining dollar index makes dollar-denominated commodities cheaper for non-dollar holders, potentially stimulating buying interest from major importers like China and Vietnam. With multiple bullish and bearish factors intertwined, cotton prices are likely to oscillate in the 78-83 cents/lb range in the near term, awaiting a new fundamental catalyst for a directional breakout.