83.16 cents per pound. That was the settlement price for the ICE December cotton contract on August 6, up a modest 0.17% from the previous session. The modest gain belies the turbulent context—US cotton export sales data swung sharply, yet prices held firm, supported by weather premiums. This suggests the global cotton market's pricing logic is shifting from demand-driven to supply-risk-driven.
Market Background
The USDA export sales report for the week ending July 30 showed current-year upland cotton net sales of -55,855 bales, down 288% from the prior week and 223% below the four-week average. On the surface, this looks bearish, but a closer look reveals nuance: the net reduction largely reflects cancellations or adjustments of previous orders, while net sales to China still reached 4,136 bales, indicating that actual demand has not collapsed. More tellingly, next-year sales surged by 242,052 bales, though China's share was zero. The market interpreted this as "decent" performance.
Jon Marcus, president of Lakefront Futures and Options in Chicago, remarked that nothing seems to suppress the market and that we are witnessing the beginning of a bullish cycle. This optimism is not unfounded: Brazil's July cotton exports reached 154,965.56 tons, up 22% year-on-year, per Secex data. ICE deliverable stocks remained flat at 84,632 bales, confirming no oversupply pressure in the physical market.
Industry Impact
Weather risk is becoming the core variable in cotton pricing. The USDA's daily weather report indicates cloudy skies and scattered showers in Kansas and surrounding areas, but the southern Plains remain hot and dry, while high temperatures are returning to the northern Plains. Cotton in the Plains, especially from Texas to Oklahoma and Kansas, relies heavily on rainfall and soil moisture, making yields highly vulnerable to drought and extreme heat. A strong El Niño is expected this year, which would significantly alter rainfall patterns—India's monsoon has already been delayed, and this month's rainfall is forecast below average. This means the weather premium in northern hemisphere growing regions is unlikely to fade soon, providing solid support for cotton prices.
For buyers, the current price level means raw material costs have entered a "weather premium" channel. If drought intensifies or El Niño impacts exceed expectations, prices could rise further. Mills should lock in forward supplies early. For trading companies, the increased volatility in US export data highlights the need for cautious contract execution and shipping schedules, especially for US cotton orders, with attention to exchange rate and freight risks. Additionally, a stronger dollar and oil prices up over $3 per barrel are raising the overall import cost of cotton, reinforcing expectations of elevated price levels.