At 83.16 cents per pound, the ICE December cotton contract settled just 0.17% higher, but beneath the calm surface lie strong undercurrents: US export data shows a sharp divergence between old and new crop years, Brazil exports surged 22% year-on-year, and the Southern Plains are gripped by hot, dry conditions. Cotton prices have found support above 80 cents, but the driving logic is shifting from demand to supply, with weather emerging as the sword of Damocles over the market.
Structural Signals in Export Data
The latest USDA export sales report reveals a tale of two crop years. Current-crop (2025/26) upland cotton net sales were minus 55,855 bales, down 288% from the previous week, with China taking only 4,136 bales. In contrast, next-crop net sales reached 242,052 bales, but China bought zero. This divergence signals that old-crop demand is winding down, and the market is turning its attention to the new crop, while Chinese buyers remain on the sidelines, likely waiting for more competitive prices.
Shipments totaled 222,830 bales, down 5% week-over-week and 7% below the four-week average, with only 7,248 bales shipped to China. The slowing pace suggests weaker demand for US cotton, possibly due to earlier high prices. Yet Chicago-based trader Jon Marcus commented that 'nothing is suppressing this market, and we are seeing the beginning of a fairly bullish run,' reflecting persistent optimism that keeps bears at bay.
Brazil's Rise and the Reshaping of Global Supply
Data from Brazil's foreign trade secretariat shows July cotton exports of 154,965.56 tons, up 22% year-on-year. This growth far exceeds the global average, indicating that Brazil is rapidly gaining market share in Asia at the expense of US cotton. For buyers, Brazilian cotton offers competitive pricing and quality that suits many spinning processes.
Brazil's expansion is a long-term trend driven by acreage growth and yield improvements. At current prices in the 80-90 cent range, Brazilian farmers remain profitable, which in turn caps the premium US cotton can command. The global supply structure is shifting from 'US dominance' to multi-polar competition, giving traders and mills more options and potentially suppressing long-term price gains.
Weather Risks: The Potential Impact of El Nino
The core variable now is weather. USDA's daily weather report shows scattered showers in Kansas and surrounding areas, but the Southern Plains remain hot and dry, with high heat returning to the Northern Plains. Cotton regions from Texas to Oklahoma and Kansas rely heavily on rainfall and soil moisture, making yields vulnerable to drought and extreme heat. More concerning, a strong El Nino is forecast this year, which could significantly alter global rainfall patterns. India's monsoon has already been delayed, and rainfall this month is expected to be below average.
Weather risks affect cotton prices in two ways: on one hand, crop loss expectations directly push futures higher; on the other, El Nino could cause abnormal weather in other producing regions such as Australia and Africa, further tightening global supply. For mills, this means greater raw material cost volatility, making forward coverage increasingly important.
Macro and Geopolitical Factors Intertwine
A stronger US dollar pressures dollar-denominated cotton, but oil prices rose over $3 on news that Iran's parliament is considering a bill to bar US and Israeli ships from the Strait of Hormuz, which indirectly supports cotton by raising energy costs and thus synthetic fiber prices. Geopolitical uncertainty adds to short-term volatility. ICE deliverable stocks held steady at 84,632 bales, indicating a relatively balanced spot market, but if weather issues escalate, inventories could decline rapidly.