On August 27, ICE December cotton futures settled at 92.41 cents per pound, up 3.67% on the day and touching an intraday high of 92.75 cents, the highest since April 2024. This marks the first time the contract has broken above the 90-cent threshold since early 2024, with cumulative gains exceeding 13% this month. For spinning mills relying on imported cotton, this price signal indicates a systematic upward shift in raw material costs, not a short-term blip.
Background
The immediate driver is the continued deterioration of US cotton crop conditions. The latest USDA crop progress report shows the good-to-excellent rating at only 37%, down from 54% a year ago, a 17-point year-on-year decline. Field tours corroborate the trend, with drought and heat in major growing regions causing boll shedding and quality degradation, fueling concerns over yields and fiber quality.
Meanwhile, expectations of a strong El Niño event are rising, which could significantly alter rainfall patterns and exacerbate drought risks in cotton belts. Weather premiums are thus being continuously priced into futures, driving the rally over several weeks. Additionally, strength in the grain complex provided extra support, with risk appetite in agricultural commodities clearly recovering.
Industry Impact
With prices breaking the key level, transmission effects are emerging across the chain. First, traders and ginners holding low-cost inventories see expanded floating profits, increasing hedging pressure, while spinners who have not yet fixed prices face higher procurement costs and squeezed margins. The Cotlook A index rose in tandem to 98.30 cents per pound, confirming the upward momentum in the physical market.
However, demand has not strengthened in parallel. The USDA export sales report shows that for the week ending August 20, US cotton export sales were 95,726 running bales, down 54% from the previous week, with net sales to China at only 1,628 bales. This indicates that high prices are dampening downstream buying interest, especially among Chinese buyers who remain on the sidelines. If prices stay elevated, some orders may shift to Brazilian or Australian cotton, subtly altering global trade flows.
For domestic textile mills, the widening spread between foreign and domestic cotton prices will directly affect the competitiveness of yarn quotes. Zhengzhou futures have been relatively moderate, and the wider spread reduces the advantage of imported yarn, potentially boosting substitution with domestic yarn. But if international prices continue to climb, domestic prices cannot stay immune, and cost-push inflation may transmit down the chain, eventually reflecting in higher export quotes for fabrics and garments.