On August 27, the ICE December cotton futures contract 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 breakout above the 90-cent threshold is the first since early 2024. Monthly gains have exceeded 13%, reflecting a clear shift to bullish sentiment. However, for the textile value chain, this is not simply good news—the widening gap between surging raw material costs and weak end-demand is becoming a critical concern.
Background: Weather and Crop Data Converge
The core driver behind this rally is the deteriorating condition of US cotton crops. The latest USDA crop progress report shows the good-to-excellent rating at only 37%, down 17 percentage points from 54% a year ago. Field scouts have reported significant deterioration, and with expectations of a strong El Niño this year, rainfall patterns could shift further, exacerbating supply concerns. Meanwhile, strength in the grain markets provided additional support, and a slightly weaker US dollar reduced holding costs for dollar-denominated commodities.
Notably, export sales have not kept pace with the price surge. For the week ending August 20, US cotton export sales were a net 95,726 running bales, down 54% from the previous week, with sales to China at just 1,628 bales, and zero for the next marketing year. This suggests the rally is driven more by supply-side expectations than actual demand.
Industry Impact: Cost Pass-Through and Procurement Strategy
For Chinese textile mills, rising US cotton prices directly increase the cost of imported cotton. The Cotlook A index has climbed to 98.30 cents per pound, up 70 points in a day. However, domestic fabric and grey cloth markets have not seen synchronized price increases, and end-use apparel orders remain largely need-based with high price sensitivity. This 'raw materials up, finished goods flat' scenario is squeezing margins in spinning and weaving.
Historically, when ICE cotton rallies sharply, Zhengzhou cotton futures tend to follow but with a lag. If the US crop rating remains low, upcoming USDA supply-demand reports could lower production estimates, reinforcing the bullish case. However, weak export sales suggest international buyers are resistant to high prices, and once weather speculation cools, a pullback is possible. For procurement managers, chasing the rally is risky; phased buying or options hedging may be prudent.