On August 27, ICE cotton futures for December settled at 92.41 cents per pound, up 3.67% on the day, after touching an intraday high of 92.75 cents, the highest since April 2024. This marked the first time since early 2024 that cotton futures broke above the 90-cent threshold, with a monthly gain exceeding 13%. For the textile supply chain, this price signal means rising raw material cost pressure, and whether downstream orders can absorb it will determine the sustainability of the rally.
Background
The immediate driver comes from the supply side. The latest USDA crop progress report showed that the US cotton crop condition rated good-to-excellent stood at only 37%, down sharply from 54% a year earlier. Field tours reported significant deterioration in crop conditions, and expectations of a strong El Niño weather pattern that could alter rainfall distribution have fueled concerns about reduced cotton output. The weather premium has become the core upward driver, and it is unlikely to be disproven in the short term.
Meanwhile, strength in the grain markets provided additional support. Strong performance in soybeans and corn in Chicago lifted risk appetite across the agricultural complex. In addition, a slight decline in the US dollar index added to the bullish tone for dollar-denominated cotton. These factors combined to attract sustained capital inflows into cotton futures.
Industry Impact
However, in stark contrast to the heat on the supply side, demand remains tepid. The USDA export sales report showed that net sales of US upland cotton for the week ending August 20 were 95,726 running bales, down 54% from the previous week, with net sales to China of only 1,628 bales, and zero for the next marketing year. This data reveals that international buyers are not aggressively chasing prices, especially Chinese buyers, whose purchasing willingness is notably weak.
For Chinese textile mills, the high cotton price means significantly higher raw material procurement costs. But price transmission to downstream yarn and fabric orders lags, squeezing profit margins. If cotton prices continue to climb without a corresponding recovery in end demand, mills may curtail purchases and reduce inventories, which would in turn dampen price momentum. Therefore, this rally appears more like a pulse driven by supply-side expectations, and its persistence hinges on whether demand can follow through.
Notably, crude oil prices rose 2.1%, ending a three-day losing streak, as geopolitical risks in the Middle East resurfaced. Higher energy costs will lift costs for chemical fiber substitutes, indirectly enhancing cotton's competitiveness, but they also add to overall energy cost pressure for textile manufacturers.
Practical Recommendations
Given the heightened volatility, all segments of the supply chain should remain cautious, use hedging tools appropriately, and avoid chasing prices unilaterally.