US cotton quality ratings dropped by 4 percentage points in a week, yet ICE cotton futures pulled back slightly after touching a three-week high. As of the week ending August 2, the good-to-excellent rate stood at only 42%, far below last year's 55%. This contrast reveals the core contradiction in the current market: weather-driven supply concerns versus cost pressures on the demand side are in a fierce tug-of-war.
Market Background
On August 4, the most active December ICE cotton futures contract settled at 82.46 cents per pound, down 0.13% from the previous session. In the prior three sessions, prices had climbed to the highest level since July 13, driven by concerns over hot and dry weather in Texas. However, profit-taking and a sharp drop in international crude oil prices quickly suppressed upward momentum.
Crude oil futures plunged over 5% to a three-week low on the same day, as expectations of a diplomatic resolution to the Iran conflict eased concerns about shipping through the Strait of Hormuz. Lower oil prices reduce the production cost of polyester, a key substitute for cotton, thereby weakening cotton's competitiveness in textile raw materials and exerting indirect bearish pressure on cotton prices.
Industry Impact
For the textile supply chain, the decline in US cotton quality ratings is not an isolated event. Texas, the largest cotton-producing state, directly affects new crop output and quality. A drop from 46% to 42% suggests higher abandonment rates and lower yield expectations, which could tighten global cotton supply. Meanwhile, lower oil prices may prompt some mills to shift toward polyester, dampening cotton demand.
Inventory data show that ICE certified cotton stocks fell to 86,371 bales as of August 3, down from 87,606 bales the previous day. This continuous decline indicates tight physical supply, providing some support to prices. However, this support appears fragile amid weakening macro sentiment. The US dollar index fell, while the S&P 500 and Dow Jones hit record highs, indicating improved risk appetite but not flowing into commodities.
The Cotlook A index rose 90 points to 93.70 cents per pound on August 4, reflecting resilience in the international physical market. But the basis between futures and physical prices suggests traders need to be cautious in point pricing and basis trading. For Chinese importers, the linkage between US cotton landed costs, domestic cotton prices, and chemical fiber prices will directly affect procurement timing.