On August 28, ICE cotton futures retreated from a two-year high, with the most-active December contract settling at 91.38 cents/lb, down 1.11% on profit-taking. Yet the market marked a sixth consecutive weekly gain, advancing about 3.4% for the week, the largest weekly rise since early July. This divergence underscores the core tension: persistent supply concerns versus an overbought short-term market.
Supply-Side: Weather Risks Anchor Pricing
The fundamental driver behind the rally is abnormal weather in major cotton-producing regions. Drought remains unresolved in Texas, the key US cotton state, while India is experiencing its weakest monsoon in nearly two decades, with rainfall expected to be about 15% below the long-term average. Statements from senior Indian meteorological officials have directly triggered a repricing of global supply tightness.
According to a report from the USDA Foreign Agricultural Service (FAS) office in New Delhi, India's 2026/27 cotton production is forecast at 24.5 million bales, with planted area around 11.5 million hectares. Due to below-normal rainfall in August-September, yields are expected to decline by 2% to 464 kg per hectare, with western and central India facing the highest risk of persistent drought. This implies that even with stable acreage, actual output may fall short of expectations, further tightening global supply.
Market Reaction: Profit-Taking and Fund Positioning
After consecutive gains, profit-taking has become the dominant short-term force. Keith Brown, chief cotton broker at Keith Brown and Co. in Georgia, noted that after the sharp surge, some investors chose to lock in profits ahead of the weekend. Such moves are common in commodity futures, but notably, the pullback was limited and weekly gains held, indicating that bullish momentum has not collapsed.
Inventory data also reflects market caution. As of August 27, ICE deliverable No. 2 cotton futures stocks stood at 66,327 bales, unchanged from the previous session, suggesting weak physical delivery appetite and a preference for holding futures positions. Meanwhile, a firmer US dollar and slightly lower oil prices added pressure, but failed to reverse the overall uptrend.
Price Outlook: Higher Volatility, Adjust Procurement Strategies
Current prices are at their highest since early 2024, with the Cotlook A index rising to 101.30 cents/lb, up 300 points on the day. For textile mills, raw material costs have risen significantly, especially for those relying on imported cotton, squeezing profit margins further.
From a fundamental perspective, supply concerns are unlikely to dissipate soon. The El Niño weather phenomenon is expected to be particularly strong, significantly altering rainfall patterns and potentially impacting commodity prices. This suggests that the cotton price center may remain elevated, but volatility will increase. Investors and buyers should watch two risks: rapid technical corrections after sharp rises, and potential long-side panic if weather conditions improve in key regions.