On August 27, ICE cotton futures for December settled at 92.41 cents per pound, up 3.67% on the day, after touching 92.75 cents, the highest since April 2024. This marks the first time since early 2024 that the contract has closed above 90 cents, with a monthly gain exceeding 13%. For the textile supply chain, this price surge signals rapidly rising raw material costs, squeezing margins for spinners, weavers, and fabric producers.
Market Context
The rally is primarily driven by deteriorating crop conditions in the US. According to the latest USDA crop progress report, cotton good-to-excellent ratings fell to 37%, down 17 percentage points from 54% a year ago. Field surveys confirmed significant crop deterioration, fueling expectations of lower yields and attracting speculative buying.
Strength in the grain complex provided additional support, as corn and soybean futures rose on weather concerns. Moreover, concerns about a strong El Niño event, which could alter global rainfall patterns, added a weather premium to cotton prices.
However, demand fundamentals remain weak. USDA export sales data for the week ending August 20 showed net sales of 95,726 bales, down 54% from the previous week, with China buying only 1,628 bales. This divergence indicates that the price rally is supply-driven rather than demand-led.
Industry Impact
Cotton prices above 90 cents pose direct cost pressure on textile mills worldwide. For spinners relying on US cotton, raw material costs have risen by over 10% month-on-month, while downstream order prices adjust with a lag, compressing margins. Some mills may shift to Brazilian, Australian, or Indian cotton, but global supply of high-grade cotton is tight, limiting substitution.
In China, Zhengzhou cotton futures may follow the external market, but the narrowing of domestic-international price spreads will affect the attractiveness of imports. If US cotton remains high, mills may increase domestic cotton usage, supporting domestic prices. However, weak downstream demand limits the ability to absorb high-priced raw materials.
Rising oil prices (Brent up 2.1%) also lifted chemical fiber alternatives, indirectly enhancing cotton's competitiveness. A slight dip in the US dollar index provided additional support. Overall, prices are likely to stay elevated in the short term, but correction risks exist if weather fears subside.