ICE December cotton futures settled 1.04% lower at 83.50 cents per pound on August 13, a pullback driven by profit-taking after a two-week rally rather than a reversal of fundamentals. The real focus lies in the USDA's latest supply-demand report and extreme weather expectations reshaping the 2026/27 balance, while falling oil prices cast a shadow on demand.
Event Background
The USDA August report trimmed 2026/27 US cotton production to 13.61 million bales, down 90,000 from July, and cut ending stocks to 4.00 million bales from 4.10 million. Lower production and inventories would normally be clearly bullish, but the market chose to lock in gains after the report, suggesting the positive news was largely priced in. StoneX risk management consultant Bailey McHenry noted that after two weeks of strength, a modest correction was overdue, and the report merely served as a trigger.
More concerning is the weather variable. The US Climate Prediction Center said Thursday that El Niño continues to strengthen, with a probability above 90% for a strong event in the 2026/27 Northern Hemisphere autumn-winter season. If hot, dry conditions persist in major cotton belts, yield downgrade risks will rise significantly, and expectations of tighter global supplies could intensify through the next growing season. This implies limited room for further price declines, as a weather premium will persist.
Industry Impact
Falling oil prices were another driver of the day's decline. Cheaper energy reduces production costs for polyester and other synthetic fibers, enhancing their competitiveness against cotton and pressuring cotton demand. For textile mills, this means procurement decisions must balance high cotton prices against a widening price gap with synthetics, potentially accelerating substitution toward polyester blends in some orders.
Looking at the supply chain, reduced US output expectations and strong El Niño risks will lift the medium-term cotton price center, while weak downstream demand limits the pass-through of higher costs. This tug-of-war squeezes cotton textile enterprises between rising raw material costs and limited ability to raise product prices. Foreign trade firms should pay particular attention to currency moves—the dollar index fell on the day, which aids export pricing, but if the Fed holds rates steady in September, the dollar's weakening trend may persist, affecting the cost of dollar-denominated cotton imports.