On August 28, ICE December cotton futures settled at 91.38 cents per pound, down 1.11% on profit-taking, yet the contract posted a sixth consecutive weekly gain, rising about 3.4% for the week—the largest weekly advance since early July. More notably, prices have surged over 12% this month, touching a two-year high of 92.75 cents on Thursday.
Market Context
The rally is primarily driven by adverse weather in key producing regions. In Texas, the largest US cotton state, drought continues to deteriorate crop prospects. In India, meteorological officials report the weakest monsoon in nearly two decades, with rainfall expected to be about 15% below the long-term average. As the world's second-largest cotton producer, India's weak monsoon directly threatens new-crop yields and output.
A USDA FAS report from New Delhi projects India's 2026/27 cotton production at 24.5 million bales from about 11.5 million hectares. With below-normal rainfall expected in August-September, yields are forecast to fall 2% to 464 kg per hectare, with the western and central regions facing the highest drought risk. This data suggests that global supply tightening is becoming a reality, providing solid support for prices.
Industry Impact
The sustained rally is reshaping profit dynamics across the supply chain. Upstream ginners and traders enjoy the weather premium, but face inventory devaluation risks at high levels. Midstream textile mills face soaring raw material costs, squeezing margins amid tepid end-demand. ICE data shows deliverable stocks at 66,327 bales, unchanged from the prior day, indicating no panic buying in the physical market; the rally is largely futures-driven.
Profit-taking pressure is building after prices hit multi-year highs. A veteran Georgia cotton broker noted that after the sharp surge, some investors locked in profits ahead of the weekend. Such technical pullbacks are common in bull markets, but combined with a stronger dollar and slightly lower oil prices, short-term volatility may intensify. For buyers, this suggests chasing rallies is unwise; instead, focus on buying dips.
Looking ahead, this year's El Niño is expected to be particularly strong, significantly altering rainfall patterns and potentially impacting commodity prices. This means supply uncertainty is not a short-term blip but may persist through the growing season. Textile mills relying on imported cotton, especially Indian and US cotton, should diversify sourcing and prepare inventory contingency plans.