Cotton markets rallied sharply this week, with Zhengzhou futures breaking through 17,000 yuan/ton to a high of 17,130 yuan/ton, while ICE cotton touched 89.45 cents/lb, the highest since April 2024. However, the divergence between futures and spot was notable: futures average settlement price rose 3.5% weekly, while the China Cotton Index (B) gained only 0.7%, narrowing the basis by 217 yuan/ton. This suggests the rally is more expectation-driven than demand-led.
Weather Premium and Macro Uncertainty
Supply-side weather concerns remain the core driver. USDA data showed U.S. cotton crop conditions at 38% good-to-excellent as of August 16, down 2 points from the prior week, the lowest for this time in three years. Drought in key growing areas has increased boll shedding and hard-lock, pressuring yield prospects. The World Weather Company forecasts continued hot, dry conditions in West Texas over the next ten days, potentially worsening crop stress. In Xinjiang, cotton is in the late boll-to-early boll-opening stage, with some regions reporting fewer bolls per plant due to prolonged heat, making production cut expectations difficult to disprove.
On the macro front, the U.S. Treasury's buyback operation was seen as "more signal than substance," providing temporary support for commodity valuations via a weaker dollar, but the rebound in long-term yields poses renewed financial tightening risks. Geopolitically, the U.S.-Iran negotiation window expired, and Brent crude briefly exceeded $94/barrel, adding to risk premiums. These intertwined factors keep speculative sentiment active and support a firmer market tone.
Industry Transmission: Spot Lags, Mills Stay Cautious
Despite strong futures, spot markets responded mildly. Domestic C32S combed yarn prices rose only 0.3%, and imported yarn gained a similar modest amount, with the import-export yarn spread occasionally inverted at 76 yuan/ton. Polyester staple fiber prices increased 230 yuan/ton to 7,764 yuan/ton, but overall textile raw material momentum was weak, reflecting limited acceptance of high-priced inputs. Mills remained rational in purchasing, with no significant restocking surge.
On the demand side, U.S. textile and apparel imports in June reached $8.898 billion, up 8% year-on-year and 5.2% month-on-month, marking two consecutive months of growth and accelerating, indicating stronger-than-expected external demand. Domestically, July retail sales of apparel, footwear, and knitwear fell 1.0% year-on-year, but cumulative January-July growth of 5.8% still outpaced overall retail sales. As the traditional "golden September, silver October" approaches, autumn/winter fabric orders are gradually emerging, with increased inquiries but no concentrated volume yet.
Structural Contradictions and Outlook
Reserve cotton sales entered their fifth week, maintaining 100% transaction rates with steadily rising average prices and high bidder participation. This reflects a structural shortage of high-quality cotton—despite ample overall supply, mills face difficulty sourcing grades that meet their specifications. Meanwhile, Brazil's harvest is accelerating (59.6% complete as of August 14, versus 48.9% last year), with strong export performance—daily exports in the second week of August surged 51.1% year-on-year—providing some pressure on international prices.
In the short term, the weather theme trading window remains open, with active speculative capital and potential for further upside. However, two risks warrant attention: first, if weather risks are disproven, long liquidation could trigger a sharp correction; second, ongoing reserve sales and the approaching new crop will cap upside. Cotton prices are expected to remain range-bound with elevated volatility.