On August 27, ICE cotton futures for December settled at 92.41 cents per pound, up 3.67% on the day, after touching 92.75 cents, the highest for the contract since April 2024. This marked the first time since early 2024 that cotton futures broke above the 90-cent level, with a monthly gain exceeding 13%. For the textile supply chain, this means rising pressure on raw material costs, especially for spinners relying on imported cotton, squeezing profit margins further.
Background
The core driver behind the rally is the deteriorating condition of US cotton crops. The latest USDA crop progress report showed that as of late August, the good-to-excellent rate for US cotton was only 37%, down from 54% a year earlier. Field tours confirmed the deterioration, intensifying concerns about production prospects.
Meanwhile, this year's El Niño is expected to be particularly strong, potentially altering rainfall patterns and affecting growing conditions in major cotton-producing regions. Weather premium has become a key support for prices, with speculative funds pushing futures higher. Additionally, strength in the grain market provided extra support, helping ICE cotton break through the key resistance level.
Notably, export sales have weakened in contrast to rising prices. USDA export sales data showed that for the week ending August 20, current-year US cotton net sales were 95,726 bales, down 54% from the previous week, with China accounting for only 1,628 bales; next-year sales to China were zero. This indicates that high prices are curbing demand, particularly from Chinese buyers.
Industry Impact
The price breakout above 90 cents has different implications for upstream and downstream players. For traders and ginners holding inventories, rising prices mean inventory appreciation but also higher holding risks. For spinners, higher raw material costs directly squeeze processing margins, and if yarn and fabric prices cannot rise in tandem, losses may occur.
From a global supply-demand perspective, the combination of reduced US output expectations and declining exports creates a tug-of-war between supply concerns and weak demand. China, as the largest cotton importer, plays a crucial role in global price dynamics. Current low US cotton purchases by China suggest that if import quota policies adjust or reserve release rhythms change, market balance could shift.
Additionally, a slightly weaker US dollar and rising crude oil prices supported commodity sentiment. Brent crude rose 2.1% on Middle East geopolitical uncertainties, lifting the overall commodity complex. However, strength in tech stocks had no direct impact on cotton, with funds driven more by weather and crop data.
In the short term, cotton prices are likely to remain elevated and volatile, but upside may be limited by negative demand feedback. If quality ratings continue to decline, prices could test higher levels; conversely, if export data worsen, correction risks increase. Textile companies should closely monitor USDA weekly crop reports and export sales data to adjust procurement strategies.