On July 27, the ICE cotton futures for the most active December contract edged up 1.1% to settle at 80.88 cents per pound, driven by technical buying after the previous session's decline and a weaker US dollar. However, industry participants remain divided on whether this uptrend is sustainable.
US Cotton Crop: Quality Concerns Persist
The USDA's weekly crop progress report showed that as of July 26, the US cotton crop rated good to excellent was only 46%, down from 55% a year earlier. Although slightly improved from 45% the prior week, the overall quality rating remains at a multi-year low, implying potential risks to both yield and fiber quality in the new crop year.
Squaring and boll-setting rates stood at 81% and 45% respectively, in line with or slightly above the five-year average, indicating normal growth progress. However, the persistently low quality rating suggests that any adverse weather in the coming weeks could amplify the risk of reduced output and lower grade.
Brazil Output: Acreage Expansion Offsets Yield Loss
Consultancy StoneX reported that Brazil's 2026/27 cotton production is forecast at 3.83 million tons, down 1.5% year-on-year. Despite an expected increase in planted area, the El Niño weather phenomenon is likely to dent yields, leading to a decline in total output. As the world's second-largest cotton exporter, any contraction in Brazil's production will directly impact global supply dynamics.
From a supply-demand perspective, the Brazilian reduction will partially offset stable production from the US, but with global cotton inventories still relatively high, the short-term price boost from supply-side disruptions remains limited.
Macro and Related Markets: Oil Price Plunge Clouds Sentiment
The crude oil market experienced sharp volatility on July 27, with prices falling over 7% after the US paused airstrikes on Iran, raising hopes for resumed shipping through the Strait of Hormuz. The oil price slump indirectly pressures the cotton market through cost transmission and substitution effects, particularly altering the price ratio between polyester and cotton.
The US dollar index retreated slightly after a period of strength, providing some breathing room for dollar-denominated cotton. However, uncertainty over the Fed's future rate hike path persists, and the dollar's drag on commodities cannot be ignored.
Spot Market: Prices Decline, Trading Thin
The Cotlook A Index fell 125 points to 89.10 cents per pound on July 27, reflecting weak buying interest downstream. Major importers such as China, with relatively ample inventories, have limited appetite for high-priced cotton.
The previous Friday's decline of over 1.5% on weak export sales and a stronger dollar signals that without substantial demand improvement, the upside momentum for cotton prices is unlikely to be sustained.
Near-Term Outlook: Range-Bound Consolidation Likely
In summary, the international cotton market is caught in a tug-of-war between bullish and bearish forces.
- Supporting factors: Low US cotton quality ratings, reduced Brazil output forecast, short-term dollar weakness
- Pressuring factors: High global inventories, weak export sales, oil price plunge sentiment shock, Fed rate hike expectations
In the near term, the ICE most-active contract is likely to trade in a range of 78-83 cents per pound. For downstream textile mills, current prices do not represent an ideal window for large-scale procurement. A wait-and-see approach with hand-to-mouth buying is recommended, with focus on the August USDA supply-demand report for further confirmation of US output.