When the ICE December cotton contract fell 1.11% to settle at 91.38 cents per pound on August 28, the market did not see panic selling—the sixth consecutive weekly gain and a monthly rise of over 12% suggest that the bullish logic remains intact, with only short-term profit-taking ahead of the weekend. The tug-of-war near the two-year high of 92.75 cents indicates that prices are in a range where weather premium and technical correction are competing.
Background
The decline on August 28 was not a fundamental reversal but an adjustment in trading rhythm. ICE data showed the December contract settled at 91.38 cents, down 1.03 cents from the previous day, yet still gained about 3.4% for the week, the largest weekly increase since early July. A day earlier, the contract had hit an intraday high of 92.75 cents, the highest level since early 2024. This pattern of sharp rallies followed by pullbacks reflects persistent supply concerns, though short-term gains needed to be digested.
On the supply side, adverse weather in key growing regions is forming a resonance. Texas continues to face drought, and India's monsoon rainfall is expected to be about 15% below the long-term average, the weakest in nearly two decades. The USDA Foreign Agricultural Service office in New Delhi projects India's 2026/27 cotton production at 24.5 million bales from about 11.5 million hectares, with yields likely down 2% to 464 kg per hectare due to below-normal rainfall in August-September, with western and central regions most at risk. These factors collectively underpin the current weather premium in cotton prices.
Industry Impact
Whether the weather premium sustains depends on the evolution of El Niño. This year's El Niño is expected to be particularly strong, significantly altering global rainfall patterns, which typically has medium-term effects on commodity prices. For textile mills, this means increased volatility in raw material costs—each 1 cent rise in cotton prices adds about $22 per ton to imported cotton costs, putting pressure on already thin margins for spinners.
The spot market reacted more directly. On August 28, the Cotlook A index rose 300 points to 101.30 cents per pound, showing that international spot quotes are still following the uptrend. The widening basis between futures and spot indicates that traders expect tighter supply. However, if weather speculation cools, futures corrections could trigger spot price declines, leaving those holding high-priced inventory exposed to losses.
For buyers, current prices are historically elevated. Cotton above 90 cents means significantly higher costs for grey fabrics and garments, making order price negotiations harder. Exporters need to monitor exchange rates and freight costs—the stronger dollar and slightly lower oil prices indirectly affect procurement costs and logistics.