The US cotton spot market is experiencing a classic tug-of-war between weather premium and demand weakness. In the week ending Aug 13, the average price for benchmark quality cotton in seven designated markets rose 156 points to 77.71 cents/lb, up 22.7% year-on-year. However, spot volume shrank to 2,471 bales, down nearly 30% from the previous week and 39% from a year ago. This divergence highlights the core contradiction: supply-side stories lift prices, while cautious demand suppresses transactions.
Price Drivers
The direct driver of the price increase is weather. The Southeast saw 1-3 inches of rain, which helped soil moisture, but parts of southern Alabama still face drought stress. More critically, Texas experienced hot, dry conditions, raising expectations of abandoned dryland cotton and lowering yield estimates, injecting a weather premium into the market. Additionally, with harvest approaching, some fields have begun applying defoliants, but wet soil in some areas is delaying operations, reinforcing supply tightness.
Data shows ICE October cotton futures settled at 82.36 cents/lb on Thursday, up 40 points from last Thursday, in line with spot gains. The futures market reflects funds chasing weather themes. However, how long this premium lasts depends on actual weather and final yield data. For textile mills, this means raw material costs are unlikely to fall soon, so securing supply early is prudent.
Demand Weakness
In stark contrast to rising prices, demand is sluggish. Domestic US mills have almost no inquiries, as most have sufficient near-term cotton. Finished product demand is weak to moderate, and buyers remain cautious. Export channels are lukewarm, with only Thai, Korean, and Vietnamese agents inquiring for moderate volumes of green card cotton for Sept-Oct shipment. Far East agents are asking for discounted cotton but no deals are closed.
The contraction in spot volume (2,471 bales) and cumulative volume (4,748 bales) below last year's 5,150 bales indicates weak downstream restocking. This reflects sluggish global textile consumption and mill resistance to high prices. For buyers, the current price includes considerable weather premium, so chasing highs is risky; waiting for pullbacks is wiser.
Regional Divergence
Regionally, the Southeast market is quiet but prices are higher, with farmers reluctant to sell. In Southwest Texas (East, South, and West Texas-Kansas-Oklahoma), spot trading is thin, demand extremely weak, but average prices are up. This 'no-trade, high-price' state reflects a standoff between farmers holding back and processors waiting.
Notably, harvest has started in South Texas but is slow, expected to accelerate in September. The earliest planted fields in the Rio Grande Valley have begun picking, and Upper Coast harvest has officially started. This means new crop supply will gradually increase, potentially pressuring prices. Meanwhile, cottonseed prices are unsettled, and ginning has begun, with the industry awaiting clearer direction.