On August 28, ICE cotton futures fell 1.11% to 91.38 cents per pound after touching a two-year high of 92.75 cents the previous day. Despite the pullback, the market posted a sixth consecutive weekly gain, up 3.4% for the week, the largest since early July. This volatile trading reflects a tug-of-war between weather-driven supply concerns and short-term profit-taking.
Market Background
The rally is primarily fueled by adverse weather in major cotton-producing regions. A USDA FAS report from New Delhi projects India's 2026/27 cotton output at 24.5 million bales, with planted area around 11.5 million hectares. Below-normal rainfall in August-September is expected to reduce yields by 2% to 464 kg per hectare, with western and central India facing the highest drought risk.
Indian meteorological officials warn of the weakest monsoon in nearly two decades, with rainfall potentially 15% below the long-term average. This, coupled with expectations of a strong El Niño, heightens concerns over global supply. Texas, the largest US cotton state, also faces drought, further threatening production.
Industry Impact
The weather premium is reshaping global cotton trade dynamics. ICE cotton futures have surged over 12% this month, significantly raising raw material costs for textile mills, particularly in Southeast Asia and East Asia. Cotlook A index rose 300 points to 101.30 cents per pound on August 28, confirming the tight supply sentiment.
However, high prices have triggered profit-taking. ICE reported deliverable stocks at 66,327 bales as of August 27, unchanged from the previous session, indicating no immediate delivery pressure. A stronger US dollar and slightly lower oil prices also weighed on the market.
The elevated cotton prices will likely prompt downstream yarn and fabric producers to adjust procurement strategies. If India's monsoon remains weak, the global supply gap could widen, keeping prices elevated. Yet, if weather concerns ease, profit-taking may trigger sharp corrections, increasing market volatility.