On August 28, ICE cotton futures for December delivery 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 contract posted a sixth consecutive weekly gain, up about 3.4% for the week, the largest since early July. The monthly increase exceeding 12% has forced the global textile supply chain to reassess raw material cost dynamics.
Supply-Driven "Weather Market" Heightens Volatility
The rally is not driven by demand recovery but by supply-side disruptions. Persistent drought in Texas, the largest cotton-producing state in the U.S., has deteriorated crop conditions, while India is facing its weakest monsoon in nearly two decades, with rainfall expected to be about 15% below the long-term average. These weather issues have amplified market expectations of tighter global supply.
According to a report from the USDA Foreign Agricultural Service office in New Delhi, India's cotton production for 2026/27 is estimated at 24.5 million bales, with planted area of about 11.5 million hectares. However, due to below-normal rainfall in August-September, yields are expected to decline 2% to 464 kg per hectare, with the western and central regions facing the highest drought risk. This implies that even with stable acreage, actual output may fall short, potentially lowering global ending stocks.
For textile mills, weather-driven price increases are often more abrupt and persistent. Unlike demand-led rallies, weather markets are highly volatile and difficult to predict with traditional supply-demand models. The profit-taking on August 28 is a typical example—prices corrected after hitting highs, but supply concerns remain, limiting downside.
Transmission Along the Chain: Cost Pressure and Procurement Adjustments
High cotton prices are transmitting downstream. For spinners, raw material costs typically account for over 70% of total costs. Each 1 cent per pound increase adds about 220 RMB per ton of yarn. Current prices above 91 cents are well above most companies' annual budgets, squeezing profit margins significantly.
Moreover, increased volatility complicates inventory management. In a rising market, firms tend to build inventories to lock in costs, but a price correction could lead to devaluation losses. The August 28 decline serves as a warning: chasing rallies is not always wise; flexible procurement and hedging may be more effective.
For downstream fabric and apparel makers, higher raw material costs eventually pass through to final prices, but weak consumption recovery makes it difficult to pass on increases. This suggests that intermediate segments may face more severe profit compression, requiring cautious order-taking and consideration of price fluctuation risks.
Outlook: Focus on Weather and Policy Variables
In the short term, cotton prices will remain weather-driven. The El Niño phenomenon is expected to be particularly strong this year, potentially altering global rainfall patterns, so weather in major producing regions like India and the U.S. deserves close monitoring. Additionally, ICE deliverable stocks remain low at 66,327 bales, providing some support.
However, potential bearish factors exist. A stronger U.S. dollar, slightly lower oil prices, and global macroeconomic uncertainty could cap upside. For textile companies, prices are likely to remain elevated with wide fluctuations until supply concerns ease. It is advisable to closely follow USDA monthly supply-demand reports and weather developments, adjusting procurement and sales strategies accordingly.