On August 28, ICE cotton futures' most-active contract settled at 91.38 cents/lb, down 1.11% on the day, yet marked a sixth consecutive weekly gain with a 3.4% weekly advance—the largest since early July. Over the past month, prices have surged more than 12%, and the market now shows clear divergence near two-year highs: profit-takers eager to lock in gains versus weather-driven supply concerns underpinning prices.
Weather Premium Drives Supply Expectations
The core driver of this rally is the supply side. Texas, the largest cotton-producing state in the U.S., continues to face drought stress, deteriorating crop conditions. In India, meteorological authorities warn of the weakest monsoon in nearly two decades, with seasonal rainfall expected to be about 15% below the long-term average. Western and central Indian cotton belts face the highest drought risk, directly impacting yield prospects.
USDA's Foreign Agricultural Service in New Delhi projects India's 2026/27 cotton output at 24.5 million bales from about 11.5 million hectares, with yields potentially falling 2% to 464 kg per hectare due to dry August-September rains. As the world's second-largest producer, India's downward output revision tightens global supply expectations, providing solid support for prices.
High-Level Volatility and Chain Transmission
Rapid price gains are already transmitting downstream. The Cotlook A index rose 300 points to 101.30 cents/lb on August 28, reflecting strong spot market follow-through. For textile mills, raw material costs are climbing sharply, squeezing margins—especially for small and medium-sized spinners, some of whom may reduce operating rates or delay restocking.
From a trade perspective, ICE deliverable stocks remained stable at 66,327 bales, suggesting no panic selling. However, a firmer dollar and slightly lower oil prices cap commodity gains. Cotton prices may maintain high-level volatility in the near term; if weather sentiment fades, correction risks cannot be ignored.