On August 6, ICE cotton futures for December settled at 83.16 cents/lb, up a modest 0.17%, yet the market's underlying tone is far from placid. The market is balancing mixed US export data against rising weather risks in key growing regions. For the textile supply chain, the stabilization of cotton prices near 83 cents suggests that input costs are unlikely to retreat significantly in the near term, prompting more refined procurement strategies.
Diverging Export Data: Weak Old Crop vs. Strong New Crop
The latest USDA export sales report showed net sales of current-crop US upland cotton at -55,855 bales for the week ending July 30, down a sharp 288% from the previous week and 223% below the four-week average, with China purchasing only 4,136 bales. On the surface, this looks concerning, but the picture flips when looking at the next marketing year: net sales reached 242,052 bales, indicating solid overseas interest in forward supplies. This divergence—old crop winding down and new crop presales active—suggests the market is not abandoning its medium-term supply-demand outlook based on short-term data.
Notably, Brazil exported 154,965.56 tons of cotton in July, up 22% year-on-year, adding a significant new supply source. For Chinese buyers, the continued expansion of Brazilian cotton offers an alternative to US cotton, helping to mitigate price swings. Meanwhile, ICE deliverable stocks remain low at 84,632 bales, indicating tight physical supply, which amplifies the market's sensitivity to weather headlines.
Weather Premium Intensifies: El Niño and Drought in Growing Regions
The biggest variable right now is not demand but weather. The US Southern Plains—from Texas through Oklahoma to Kansas—is experiencing hot, dry conditions, and cotton yields are highly dependent on soil moisture. The USDA's daily weather report notes persistent dryness in the Southern Plains and returning heat in the Northern Plains, posing a direct threat to crops in the critical growth stage. Moreover, a potentially strong El Niño is expected to significantly alter global rainfall patterns, with India's monsoon already delayed and July rainfall likely below average.
The weather premium is becoming a solid floor under cotton prices. For textile mills, this implies two things: first, prices are prone to upward spikes on any dry weather news; second, if conditions worsen through August-September, expectations of tighter new-crop supplies will strengthen, giving far-month contracts more upward momentum. Thus, buyers should not heavily bet on a major price correction when planning Q4 cotton needs; instead, they should incorporate weather risk into cost budgets.
Macro Headwinds and Trade Policy: Unavoidable Variables
Beyond fundamentals, macro factors are indirectly influencing cotton. A stronger dollar typically pressures dollar-denominated commodities, but recent equity market declines and geopolitical tensions have injected risk-off sentiment into commodity markets. Notably, Iran's parliament is considering a bill to ban US and Israeli vessels from the Strait of Hormuz; if enacted, oil prices could rise further, raising transportation costs and the cost of substitute fibers like polyester. For the textile chain, higher oil prices not only affect polyester staple fiber costs but also alter the cotton-polyester price ratio, indirectly impacting cotton demand.
From a trade policy perspective, US cotton shipments to China were only 7,248 bales, reflecting subdued bilateral cotton trade. Zero net sales to China for the new crop suggests Chinese buyers have yet to enter the market in force. If this persists, US export pressure will be deferred, while Brazilian and Australian cotton will continue to fill the gap. Exporters should closely monitor US-China trade relations and adjust sourcing structures accordingly.