U.S. cotton ratings remain low, while ICE cotton futures edged higher on technical buying and a weaker U.S. dollar. The December contract settled at 80.88 cents per pound on July 27, up 0.9 cents or 1.1%, rebounding from a correction the previous session as the market tests key support levels.
U.S. Cotton Crop Condition Deteriorates
The USDA's weekly crop progress report showed that as of July 26, the U.S. cotton good-to-excellent rate stood at only 46%, down 9 percentage points from 55% a year ago. Squaring at 81% slightly exceeded last year's 79%, while boll-setting at 45% also topped 42% in 2025. This indicates that despite normal or even advanced growth, overall plant health is subpar, potentially weighing on final yields.
For textile mills reliant on U.S. cotton imports, the persistent decline in quality ratings is a warning signal. If weather conditions do not improve, both production and quality for the new crop face downward risks, raising procurement costs.
Brazil's Output Forecast Cut, Global Supply Tightens
Consultancy StoneX projected on Monday that Brazil's 2026/27 cotton output will reach 3.83 million metric tons, down 1.5% year-on-year. Although planted area is expected to expand, the El Niño weather pattern may damage yields. As the world's second-largest cotton exporter, Brazil's production cut will directly reduce tradable volumes in international markets.
With weak U.S. ratings and Brazil's reduction, the global cotton supply is shifting from ample to tight. This means higher raw material cost floors for mills, especially for high-quality cotton.
Weaker Dollar and Volatile Oil Prices Intertwine
The U.S. dollar index edged lower on Monday, making cotton more affordable for overseas buyers. The dollar's recent pullback provides relief after persistent strength had pressured prices. However, crude oil plunged over 7% as the U.S. paused airstrikes against Iran, easing supply concerns amid diplomatic efforts.
Although cotton's correlation with oil is less direct than for man-made fibers, a sharp drop in oil prices reduces costs for polyester and other substitutes, indirectly competing with cotton. Textile firms should assess relative fiber costs to avoid over-reliance on any single raw material.
Spot Market Lags Futures, Spreads Warrant Attention
The Cotlook A Index stood at 89.10 cents per pound on July 27, down 125 points. Spot gains trail futures, signaling weak downstream demand absorption. The current spread between domestic and international cotton prices is wide, favoring imports, but quota constraints and currency volatility remain uncertainties.
For mills with import needs, using futures to lock in forward costs is advisable, while closely monitoring weather in U.S. growing regions and Brazil's planting progress. Given tightening supply expectations, early stockpiling may be preferable to waiting for pullbacks.