US cotton's good-to-excellent rating has stalled at 46% for two consecutive weeks, nine percentage points lower than the same period last year. While the market was still digesting the impact of weak export sales data from last Friday, ICE cotton futures for the December contract rebounded to 80.88 cents per pound on July 27, up 1.1%. Technical buying and a short-term weakening of the dollar drove this recovery, but the fundamental signals from the industry remain far from clear.
Supply Side: US Ratings Stall, Brazil Warns of Lower Output
The latest USDA crop progress report shows that as of the week ending July 26, US cotton's good-to-excellent rating edged up just one point to 46%, compared to 55% a year ago. The squaring rate of 81% has caught up with the five-year average, and the boll-setting rate of 45% is also slightly above the historical level. This suggests that growth progress is not significantly delayed, but the persistently low quality indicator is signaling potential yield damage.
More notably, StoneX's latest report forecasts Brazil's 2026/27 cotton output at 3.83 million tons, down 1.5% year-on-year. Although planted area is expected to expand, the El Niño weather phenomenon could hurt yields. As the world's second-largest cotton exporter, Brazil's downward revision will directly affect the supply elasticity of the international market.
Demand Side: Weak Exports and Macro Headwinds
Last Friday's retreat in ICE cotton was directly linked to weak export sales data, reflecting that global textile end-demand has not yet seen a substantial recovery. Meanwhile, international oil prices plunged more than 7% on July 27, mainly due to the US suspending airstrikes on Iran, raising hopes for the resumption of shipping through the Strait of Hormuz. The sharp oil price move has a dual impact on cotton: on one hand, it lowers the cost of polyester and other synthetic substitutes; on the other, it drags down overall commodity valuations through macro sentiment.
After a period of strength, the US dollar index has pulled back slightly, providing short-term price support for dollar-denominated cotton. However, the uncertainty surrounding the Fed's interest rate path remains high, and if the dollar strengthens again, cotton prices will face renewed pressure.
Price Outlook: Volatile Range with Procurement Windows
The current ICE cotton contract is testing support and resistance around 80 cents per pound. Technically, the four consecutive days of gains earlier accumulated some bullish momentum, but Friday's pullback indicates heavy overhead selling pressure. Fundamentally, supply contraction expectations (low US ratings + Brazil output cut) are clashing with demand weakness (poor export data, falling oil prices).
For downstream textile enterprises, this means procurement timing needs to be more flexible. In the short term, cotton prices are likely to oscillate in the 75-85 cents range. If US ratings continue to deteriorate in the coming weeks, or if Brazil's output is further revised down, an upward move could be triggered. Conversely, if export data remains weak and oil prices continue to fall, cotton may break below the 80-cent support level.