When the US cotton crop condition rating plunged from 54% good-to-excellent to just 37%, supply concerns ceased to be a forecast and became a reality. On August 27, the ICE December cotton contract settled at 92.41 cents per pound, up 3.67% on the day, after touching 92.75 cents, the highest since April 2024. Monthly gains exceeded 13%, and the psychological threshold of 90 cents has been decisively broken.
Supply Contraction: Lowest Crop Ratings in Years
The latest USDA crop progress report shows only 37% of US cotton is in good-to-excellent condition, far below last year's 54%. Field scouts report significant deterioration, and weather worries continue to mount. For textile mills, especially those reliant on US cotton, raw material costs are rising sharply, squeezing margins. The expected strong El Niño could further disrupt rainfall patterns, extending uncertainty across the growing season. Market expectations for yields are being revised downward, providing fundamental support for higher prices.
Demand: Export Sales Diverge from Price
In contrast to rising prices, USDA export sales data for the week ending August 20 showed current-year upland cotton net sales of 95,726 bales, down 54% from the previous week, with China buying only 1,628 bales. Next-year sales to China were zero. High prices are clearly dampening demand, and buyers are adopting a wait-and-see attitude. This divergence warrants caution: short-term prices are driven by supply fears and speculative capital, but if high prices persist, mills may switch to alternatives or reduce purchases, capping upside potential. Import-dependent spinners must balance locking in costs against the risk of a pullback.
External Factors: Grains, Oil, and the Dollar
Cotton does not operate in isolation. Stronger grain markets provided additional support, while crude oil ended a three-day losing streak with a 2.1% gain, improving sentiment across commodities. A slightly weaker dollar reduced holding costs for dollar-denominated goods. Meanwhile, a rally in tech stocks boosted risk appetite, drawing capital into commodity markets. These external forces amplify cotton price volatility, meaning future movements will partly depend on macroeconomic and geopolitical developments. Textile firms must monitor exchange rates and energy prices closely, as they directly affect import costs and end-demand.
Transmission and Response Across the Chain
After cotton broke above 90 cents, ginners may hold back sales, and traders face higher restocking costs. Spinners and weavers see profit margins squeezed, especially small and medium enterprises with tight cash flow. For export orders based on US cotton, cost calculations must be revisited. Historically, sharp rallies are followed by higher volatility, and chasing prices is risky. Companies should use futures hedging to lock in future raw material costs, and optimize product mix toward higher-value items to offset input cost increases.