On August 27, ICE cotton futures achieved a key breakthrough: the December contract settled at 92.41 cents per pound, up 3.67% on the day, with an intraday high of 92.75 cents—the highest since April 2024. This marked the first time since early 2024 that futures broke above the 90-cent threshold, with cumulative gains exceeding 13% this month. For domestic textile mills relying on imported cotton, this price signal indicates rapidly accumulating raw material cost pressure, and the underlying supply-side changes deserve deeper examination.
Supply Side: Deteriorating Crop Conditions and Weather Premium
The latest USDA crop progress report shows that the good-to-excellent rating for US cotton is only 37%, well below the 54% recorded last year. This data directly reflects the negative impact of weather conditions on cotton plant growth in major producing areas, and explains the recent sustained price strength. Market participants noted that field surveys found significant deterioration in field crops, with cotton—being a moisture-sensitive crop—bearing the brunt of drought or abnormal rainfall.
More concerning is that this year's El Niño weather phenomenon is expected to be particularly strong, potentially significantly altering rainfall patterns and affecting yield prospects across major global cotton-producing regions. The weather premium is becoming an important support factor for futures prices, but this also means that any weather improvement could trigger price corrections, significantly increasing volatility risk.
Demand Side: Export Sales Decline and Cautious Purchasing
In contrast to the tight supply side, demand has not strengthened in tandem. The USDA export sales report shows that for the week ending August 20, net sales of US upland cotton for the current marketing year were 95,726 bales, down 54% from the previous week; among which net sales to China were only 1,628 bales, and for the next marketing year, sales to China were zero. As the world's largest cotton importer, China's weak purchasing sentiment reflects sluggish downstream textile demand and uncertainties in Sino-US trade relations.
The divergence between weak export data and rising futures prices indicates that the current market is primarily supply-driven rather than demand-pulled. This structural divergence means for textile mills: raw material prices are high but order support is insufficient, further compressing profit margins. Meanwhile, the US dollar index edged lower and international oil prices rose 2.1% due to Middle East tensions, indirectly affecting cotton import costs.
Industry Impact: Cost Pass-Through and Procurement Rhythm
Cotton futures breaking above 90 cents will directly push up import costs for foreign cotton, with the Cotlook A index already rising to 98.30 cents per pound, up 70 points in a single day. For spinning mills using imported cotton such as US or Brazilian cotton, raw material costs typically account for over 70% of total costs; this price increase will significantly raise production costs. If downstream fabric and garment orders cannot be repriced accordingly, corporate profits will be severely squeezed.
From the supply chain transmission perspective, rising cotton prices may accelerate textile mills' adjustment of fiber mix, such as increasing participation in auctions of state reserve cotton, or switching to more cost-effective Central Asian or West African cotton. Simultaneously, some enterprises may choose to reduce spot purchases and maintain low inventory strategies to avoid the risk of high-price pullbacks. However, if weather issues persist, waiting could mean even higher costs.