On August 3, ICE cotton futures closed slightly higher, but spent most of the session under pressure. The December contract settled at 82.57 cents per pound, up 0.95% from the previous day. This mixed performance reflects a delicate balance between bullish and bearish forces: falling oil prices reduced the production cost of polyester, cotton's substitute, while strong export data and still-high speculative net longs provided support.
Market Background
Crude oil was the immediate pressure. US crude futures fell more than 5%, and Brent crude plunged about 7% to a three-week low. Geopolitical tensions eased as the US postponed further strikes on Iran, seeking a deal to increase Gulf oil supplies. Lower oil prices directly cut polyester production costs, widening its substitution advantage over cotton. StoneX risk management consultant Bailey McHenry noted that after a strong rally last week, the market was starting to correct.
Speculative positioning also adjusted. CFTC data showed that as of July 28, speculative net longs in ICE cotton fell by 2,295 contracts to 70,542. However, McHenry believes traders still hold a substantial net long position, and the weekly chart shows a modest uptrend. This suggests that despite short-term profit-taking, the medium-term sentiment has not turned bearish.
Industry Impact
Export data is a key fundamental support. USDA's export sales report for the week ending July 23 showed net sales of 352,400 bales of upland cotton for the next marketing year, far above the previous week's 16,100 bales. This surge indicates robust overseas demand, with major buyers like China restocking on price dips. For export-oriented textile mills, this signals recovering overseas orders, but high prices may slow purchasing pace.
Another variable is crop conditions. USDA's weekly crop progress report showed that as of August 2, the cotton crop good-to-excellent rating was 42%, down from 46% the prior week and well below 55% a year ago. The declining rating suggests potential production shortfalls, which could build a weather premium in the coming weeks. ICE certified stocks fell to 87,606 bales as of July 31, down from 90,699 the previous session. Lower stocks and deteriorating crop conditions reinforce each other, providing potential upside support.
For the domestic textile chain, short-term price volatility is increasing, but the medium-term trend depends on two variables: whether oil prices stabilize—if they remain low, polyester substitution will cap cotton gains; and whether the crop rating worsens further, which could trigger a rally above recent highs. Buyers should prepare for both scenarios.