On August 27, ICE December cotton futures settled at 92.41 cents per pound, up 3.67% on the day, after touching 92.75 cents, the highest since April 2024. This marks the first time since early 2024 that cotton futures have crossed the 90-cent threshold, with monthly gains exceeding 13%. For the textile supply chain, this breakout is not an isolated event but a phase result of the tug-of-war between supply-side weather premium and demand-side weakness.
Supply Contraction Fears Dominate
The core driver behind this rally is the continued deterioration of crop conditions in major US cotton regions. The latest USDA crop progress report shows the good-to-excellent rate at only 37%, down sharply from 54% a year ago. Field tour feedback confirms this trend, intensifying concerns over yield downgrades. Meanwhile, this year's El Nino is expected to be particularly strong, potentially altering rainfall patterns in key producing areas and amplifying supply uncertainty.
From an industry transmission perspective, US cotton serves as the global pricing anchor. Breaking above 90 cents means import costs will rise notably. With the Cotlook A index at 98.30 cents, the landed cost in China has exceeded RMB 16,000 per ton, up about 8% from earlier lows. Coastal textile mills relying on imported cotton are facing rapidly accumulating raw material cost pressure.
Weak Demand Offsets Rally
Notably, the price surge has not been supported by demand. USDA export sales data for the week ending August 20 show net sales of 95,726 running bales for the current marketing year, down 54% from the previous week; net sales to China were only 1,628 bales, with zero for the next marketing year. These figures reveal two key signals: first, high prices have significantly suppressed buying interest, especially with Chinese buyers absent; second, the global textile end-demand recovery is limited, and downstream orders cannot sustain such high raw material prices.
This coexistence of supply speculation and demand weakness implies that the upward price trend lacks a solid foundation. For domestic textile enterprises, the spread between foreign and domestic cotton may widen further, eroding the price advantage of imported cotton. Some orders may shift to Xinjiang cotton or port stocks. However, the domestic cotton market also faces policy adjustments and inventory constraints, making a one-sided rally unlikely in the short term.
Cost Transmission and Procurement Strategy
After the breakout, all segments of the chain need to recalibrate strategies. For spinners, raw material costs typically account for over 70% of total costs. If cotton prices stay high, yarn prices will inevitably follow, but whether downstream weaving and apparel makers can accept price hikes is uncertain. Historical experience shows that when cotton prices rise rapidly without synchronized end-demand recovery, intermediate margins are often squeezed, sometimes leading to inverted cost structures.
From currency and energy perspectives, a slightly weaker dollar and a 2.1% rise in Brent crude provide indirect support through pricing and transportation costs. However, the AI-driven tech stock rally has not spilled over into commodity demand, and market sentiment remains risk-averse. Therefore, textile companies should avoid building large inventories at high prices and instead use futures basis changes to hedge and lock in future procurement costs.