On August 6, ICE cotton futures for December settled at 83.16 cents per pound, up just 0.17%. Despite the modest gain, the combination of export sales data and weather conditions points to a new pricing logic—a tug-of-war between weather premiums and weak demand that will likely define price movements in the coming weeks.
Export Data: Clear Divergence Between Marketing Years
The USDA export sales report showed that for the week ending July 30, current marketing year upland cotton net sales were minus 55,855 bales, down 288% from the previous week, while next marketing year net sales reached 242,052 bales. This stark contrast reflects a shift in market expectations as old-crop demand winds down and new-crop bookings begin. Notably, net sales to China for the new year were zero, and old-crop shipments to China were only 7,248 bales, indicating no reversal in the sluggish trade flow.
Data from Brazil's Secex showed July cotton exports of 154,965.56 tons, up 22% year-on-year. Brazil's robust export growth is filling part of the supply gap but also intensifying global competition. For buyers, this means alternative sources such as Brazilian and Australian cotton are increasingly available, enhancing bargaining power.
Weather Risks: Supply Shock Expectations from El Niño
Market focus is shifting from demand to supply. The USDA daily weather report indicates persistent hot and dry conditions in the Southern Plains. Cotton fields from Texas through Oklahoma and Kansas rely heavily on rainfall and soil moisture, making yields vulnerable to drought and extreme heat. Meanwhile, a strong El Niño is expected this year, which could significantly alter rainfall patterns. India's monsoon has already been delayed, with rainfall expected below average this month.
Weather's impact on prices is not linear. Sustained drought in key regions could quickly raise production shortfall expectations and push futures above the current range. Conversely, improved weather could erase accumulated premiums. Thus, weather forecasts over the next few weeks will be a key guide for short-term traders, while supply chain players need to assess the impact of potential supply tightening on procurement costs.
Market Linkages: Macro and Geopolitical Disturbances
Beyond fundamentals, macro and geopolitical factors are indirectly affecting cotton. The US dollar index rose, putting some pressure on dollar-denominated cotton, but oil prices surged over $3 amid news that Iran's parliament is considering a bill to ban US and Israeli ships from the Strait of Hormuz, raising energy costs and boosting cotton's appeal as an alternative. Should the US-Iran situation escalate, it could disrupt shipping and trade chains, warranting vigilance.