On August 28, ICE cotton futures pulled back from a two-year high, settling at 91.38 cents/lb, down 1.11% on the day. Yet the market posted a sixth consecutive weekly gain, with a weekly rise of about 3.4%, the largest since early July. This price action reflects a delicate balance between weather-driven bullish sentiment and profit-taking pressure.
Weather Premium Drives Market Sentiment
The core driver of the recent rally is adverse weather in major producing regions. Texas, the largest cotton-producing state in the U.S., faces persistent drought that worsens crop prospects. India is experiencing its weakest monsoon in nearly two decades, with rainfall expected to be about 15% below the long-term average, according to senior Indian meteorological officials. This has triggered a repricing of supply risks.
A report from the USDA Foreign Agricultural Service in New Delhi projects India's 2026/27 cotton production 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 2% to 464 kg per hectare, with the western and central regions facing the highest drought risk. As the world's second-largest producer, any output downgrade in India will directly impact the global supply-demand balance.
Notably, this year's El Niño is expected to be particularly strong, significantly altering rainfall patterns and potentially affecting commodity prices. For the textile supply chain, this implies that supply uncertainty may persist into the next planting season, amplifying price volatility.
High-Level Correction and Support Factors Coexist
Despite strong weather support, short-term technical correction pressure is evident. Keith Brown, chief cotton broker at Keith Brown and Co. in Georgia, noted that after a sharp price surge, some investors took profits before the weekend. This is common in futures markets, especially after prices hit multi-year highs.
Inventory data shows that as of August 27, ICE deliverable No. 2 cotton futures stocks stood at 66,327 bales, unchanged from the previous session, indicating no significant delivery pressure in the spot market. However, a stronger U.S. dollar and slightly lower oil prices exerted some downward pressure on dollar-denominated commodities.
For downstream textile mills, current cotton prices are at multi-year highs. The Cotlook A index rose 300 points to 101.30 cents/lb on August 28, confirming firmness in the international spot market. Yet high prices inevitably dampen demand, and some mills may adopt a wait-and-see approach, which could pressure prices in the coming weeks.
Impact on the Supply Chain and Strategies
The high-level price volatility affects different segments of the chain differently. For upstream ginners and traders, the weather premium boosts inventory values but also raises the risk of a sharp pullback. For spinners, higher raw material costs squeeze margins, forcing them to optimize product mixes or pass on costs. For downstream apparel brands and buyers, the challenge is balancing cost pressures with weak end-demand.
From a regional perspective, China, as the world's largest cotton importer, is directly affected by international price swings. Coastal spinning mills in Shandong and Jiangsu, which rely heavily on imported cotton, are more sensitive to global prices. Companies should closely monitor weather developments in major producing countries and use futures tools for hedging to lock in costs.