US cotton quality fell to 37% good-to-excellent, pushing ICE cotton futures above the 90 cents/lb threshold for the first time since early 2024. The front-month December contract settled at 92.41 cents/lb on August 27, up 3.67% on the day, after hitting an intraday high of 92.75 cents. For the textile industry, this price breakout signals an upward cost channel, squeezing margins of fabric and apparel makers.
Background
The rally is not isolated. The latest USDA crop progress report showed only 37% of US cotton in good-to-excellent condition, sharply down from 54% a year ago, with field surveys confirming significant deterioration. Concerns over supply tightness, combined with expectations that a strong El Niño could alter rainfall patterns, have driven prices up over 13% this month. A stronger grain complex and a slightly weaker dollar added further support.
Notably, the price surge lacks demand confirmation. USDA export sales data for the week ending August 20 showed current-year upland cotton net sales of 95,726 bales, down 54% from the previous week, with China buying only 1,628 bales; next-year sales to China were zero. This divergence suggests the rally is supply-driven rather than demand-led, raising the risk of a pullback.
Industry Impact
The transmission of higher cotton prices is asymmetric. Ginners and traders may benefit from inventory gains, but spinners and weavers face higher input costs while end-product prices adjust slowly, squeezing margins. High-count yarn and premium fabric producers using US cotton are particularly exposed.
For buyers, chasing the rally with large stockpiles is risky. Weak export sales indicate fragile demand; if El Niño effects are milder than expected or the dollar strengthens, prices could correct quickly. A more prudent approach is to phase purchases, lock in forward contracts, and monitor price spreads of alternatives like Australian and Brazilian cotton.