US Cotton Quality Drops to 37%, International Prices Break 90 Cents

On August 27, ICE cotton futures for December delivery settled at 92.41 cents per pound, up 3.67% on the day, after hitting an intraday high of 92.75 cents, the highest since April 2024. This marks the first time since early 2024 that cotton futures have broken above the 90-cent threshold, with cumulative gains exceeding 13% this month. The rally is driven by deteriorating US crop conditions and strength in the grain complex, but weak export data casts a shadow over the uptrend.

Background

The latest USDA crop progress report shows that as of late August, only 37% of the US cotton crop was rated good-to-excellent, down 17 percentage points from 54% a year ago. Field tours confirmed the deterioration, with significant crop degradation observed in major cotton-producing regions. The El Niño weather phenomenon is expected to be particularly strong, potentially altering rainfall patterns and adding to supply uncertainty.

Meanwhile, strength in the grain markets provided additional support. Wheat and corn futures have been rising recently, boosting sentiment across the agricultural complex and attracting fund flows into cotton. A slightly weaker US dollar also reduced the cost of dollar-denominated commodities, providing a tailwind for cotton futures.

Industry Impact

The breakout above 90 cents has significant implications for the supply chain. For ginners and growers, higher prices mean improved profit margins, but they must be wary of volatility if weather premiums are unwound. For textile mills, raw material costs are rising sharply—if cotton prices stay high, yarn quotes may be forced up, squeezing margins for fabric and garment producers downstream.

However, weak demand is a key factor limiting gains. USDA export sales data show that for the week ending August 20, net sales of current-crop US upland cotton totaled 95,726 bales, down 54% from the previous week, with sales to China at just 1,628 bales. Next-crop sales to China were zero. As the world's largest cotton importer, China's slow purchasing pace reflects sluggish downstream orders and high inventories. If demand remains weak, a supply-driven rally may be difficult to sustain.

Practical Advice

For Buyers - Monitor weekly USDA crop progress and export sales reports to adjust purchasing plans and avoid chasing highs. - Use futures hedging to lock in raw material costs, especially for long-term contracts; consider phased buying to spread price risk. - Compare domestic and imported cotton prices; if the premium for foreign cotton widens, increase the proportion of Xinjiang cotton or state reserve cotton.

For Exporters - Include price adjustment clauses in export quotes to mitigate cost uncertainty from volatile raw material prices. - Track US cotton export commitments closely; persistently weak Chinese buying may signal softer global demand, warranting cautious order-taking. - Diversify sourcing by monitoring production changes in Brazil, Australia, and other origins to reduce reliance on a single supply source.