84.40 cents per pound—that is the latest settlement price for the ICE December cotton futures contract, up 3.2% on the week and marking a third consecutive weekly gain. For the textile supply chain, this is more than a futures number; it signals mounting pressure on raw material costs. A softer dollar and drought concerns in key growing areas are the twin engines behind the rally, and neither shows signs of fading soon.
Background
The immediate trigger for this week's price surge was the unexpected contraction in US July nonfarm payrolls. The Labor Department reported a loss of 23,000 jobs, far below the 80,000 expected, with June's gain revised down to 20,000. This marks the second contraction in the labor market this year, fueling concerns about economic growth and driving the dollar lower against major currencies like the yen and euro. For dollar-denominated cotton, a weaker dollar reduces costs for buyers using other currencies, boosting US cotton's competitiveness and supporting prices.
Weather is another factor that cannot be ignored. Data from the USDA's Office of the Chief Economist, based on the US Drought Monitor, showed that as of the week of August 4, approximately 41% of US cotton areas were affected by drought. This is a relatively high level for this time of year, raising concerns about moisture supply during the critical growth phase. Meanwhile, this year's El Niño is expected to be particularly strong, significantly altering global rainfall patterns. The Indian monsoon has already been delayed, with rainfall below average this month, further heightening worries about production prospects in major northern hemisphere cotton-producing countries.
Industry Impact
The consecutive rally in cotton prices affects the textile chain in layers. For upstream ginners and traders, the stronger futures market offers opportunities for hedging and point pricing, but also increases the risk of holding inventory—should weather speculation fade, prices could quickly retreat. For midstream spinners, higher raw material costs directly compress processing margins, especially when downstream order prices lag. Currently, yarn prices have not risen in tandem, meaning spinners' profit margins are squeezed from both ends.
For downstream apparel and home textile buyers, the pass-through of cotton price increases typically takes 4-6 weeks to appear in fabric and garment quotes. Therefore, now is a critical window to lock in costs for forward orders. Notably, the Cotlook A index rose 20 points to 93.70 cents/lb, indicating that international physical markets are also following futures higher, reinforcing the expectation of rising costs. From a currency perspective, if the dollar continues to weaken and the yuan appreciates, it may provide some offset for buyers of imported cotton, but for export-oriented enterprises, exchange rate uncertainty also increases.