Cotton futures on ICE settled at 83.50 cents per pound on August 13, down 1.04% from the previous session. After two weeks of strong gains, the market chose a round of profit-taking to digest the latest USDA supply-demand report. But a closer look at the report reveals a technical correction rather than a trend reversal: US cotton production was cut to 13.61 million bales, and ending stocks were lowered to 4 million bales, both below July estimates.
Supply-Demand Report: The Logic Behind Lower Production and Stocks
The August USDA report reduced US cotton production by 90,000 bales and ending stocks by 100,000 bales from July. The numbers seem modest, but they point to the same signal: supply is tightening. StoneX risk management consultant Bailey McHenry noted that the small pullback after the report was a normal breather in a strong market. For buyers, the more critical metric is the trend in stocks-to-use ratio, which directly influences pricing anchors in the coming months.
Weather and Climate: Medium-Term Support Levels
What truly reassures bulls is the slow variable of weather. Persistent high temperatures and drought in major US cotton regions keep the risk of lower yields on the table. The US Climate Prediction Center puts the probability of a strong El Nino event at over 90% for the Northern Hemisphere autumn and winter, which could further deteriorate growing conditions. For textile mills, this means the center of raw material costs may shift upward, making it more pragmatic to lock in forward supplies than to chase short-term low prices.
Oil Prices and Exchange Rates: Competitive Disturbance from Synthetic Fibers
Cotton's rival is not just weather. International oil prices fell over 2% on the day, lowering production costs for polyester and other synthetic fibers, thereby enhancing their competitiveness against cotton. Meanwhile, a weaker dollar and record-high stock markets suggest improved risk appetite, but expectations that the Fed will hold rates steady in September leave commodities without clear directional momentum. In this mixed environment, cotton prices are likely to remain range-bound at high levels in the short term.
Spot Market: The Quiet Signal from Cotlook A Index
On the spot side, the Cotlook A index stood at 94.95 cents per pound, unchanged from the previous day. The basis between futures and spot reflects market divergence on the outlook. For weaving mills with orders in hand, current prices are near the cost red line; traders, on the other hand, are more concerned about opportunities for hedging as the basis strengthens.