On August 6, ICE cotton futures for December delivery settled at 83.16 cents per pound, up 0.17%. The modest gain belies a tug-of-war between weak US export sales and escalating weather risks in key growing regions. For the textile supply chain, the short-term price direction now hinges more on supply-side uncertainty than on demand signals.
Export Data Soft, But Market Unfazed
The latest USDA export sales report showed net sales of current-crop US upland cotton at a net reduction of 55,858 bales for the week ended July 30, down 288% from the previous week and 223% below the four-week average. Sales to China were just 4,136 bales, with zero for the next marketing year. The data would normally be bearish, yet the market barely reacted, with ICE futures edging higher.
Traders interpreted the weakness as seasonal rather than a trend reversal. With the current crop year winding down, slower old-crop sales are expected. New-crop sales rose by 242,052 bales, indicating intact forward demand. Jon Marcus, president of Lakefront Futures and Options in Chicago, commented, "The export sales data is decent, and nothing is holding this market back," signaling that traders have shifted focus to weather, a more dominant mid-term price driver.
Weather Risk Becomes Core Price Variable
The US Great Plains is experiencing hot, dry conditions. Cotton areas from Texas through Oklahoma and Kansas rely heavily on rainfall and soil moisture, making yields highly vulnerable to drought and extreme heat. The USDA daily weather report notes persistent heat and dryness in the Southern Plains, with high temperatures returning to the Northern Plains, and only scattered showers near Kansas. If this pattern persists, the risk of US yield downgrades will rise significantly.
Adding to market concerns is the expectation of a strong El Nino this year, which could alter global rainfall patterns. The Indian monsoon has already been delayed, and monthly rainfall is forecast to be below average. As the world's second-largest cotton producer, any weather disruption in India directly impacts global supply balance. For textile mills, this means procurement decisions must factor in supply security over the coming months, not just current prices.
Brazil Exports Surge, Reshaping Global Supply
While US exports weakened, Brazil's foreign trade secretariat (Secex) reported July cotton exports of 154,965.56 tonnes, up 22% year-on-year. Brazil is emerging as a key supplier, partially offsetting potential US supply shortfalls. However, whether Brazilian gains can fully compensate for adverse weather elsewhere remains uncertain.
Inventories of ICE deliverable 2# cotton contracts stood at 84,632 bales on August 5, unchanged and relatively low. Low inventories heighten market sensitivity to supply disruptions, amplifying upward price potential during weather scares. The Cotlook A index rose 50 points to 93.50 cents per pound, indicating that spot prices are following futures and downstream buyers are still accepting.
Transmission to the Textile Chain
Cotton price volatility impacts textile companies mainly through raw material costs and order profitability. With supply uncertainty high, prices are prone to rise, and buyers waiting on the sidelines risk higher costs. Conversely, chasing highs without demand confirmation could lead to inventory buildup.
From a regional perspective, China, as the largest cotton importer, influences global prices through its purchasing pace. Recent weak US sales to China partly reflect mills locking in lower-priced supplies earlier or diversifying to Brazilian and Australian cotton. This multi-sourcing strategy proves essential amid heightened supply risks.