On August 27, ICE cotton futures for December 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 key psychological level of 90 cents. Monthly gains have exceeded 13%, shifting market sentiment from cautious to clearly bullish.
Background
The immediate driver was the continued deterioration of US cotton crop conditions. The latest USDA crop progress report showed only 37% of US cotton in good-to-excellent condition, down sharply from 54% a year ago. This suggests a substantial downward revision in US production expectations, reinforcing the supply-tightening narrative.
Meanwhile, concerns over a potentially strong El Niño event are escalating. This year's El Niño is expected to be particularly intense, potentially altering rainfall patterns across major cotton-growing regions, affecting yields and quality. Weather premium has become the core driver of recent price increases and is unlikely to be disproven in the short term.
Notably, the rally is not isolated. Firmness in the grain complex provided additional support. Field tours across the US revealed significant deterioration in row crops, boosting risk appetite in the agricultural sector, with cotton attracting speculative buying due to its higher elasticity.
Industry Impact
The price breakout above 90 cents has uneven effects across the supply chain. For ginners and growers, higher prices mean improved margins, but only if actual production meets expectations. If quality ratings continue to decline, available deliverable supplies may fall short, potentially widening cash premiums.
For textile mills, raw material costs have risen significantly. The Cotlook A index rose 70 points to 98.30 cents per pound, with imported cotton costs approaching the 100-cent threshold. Mills using US cotton, especially those producing medium-to-high count yarns, face mounting cost pressure and compressed margins.
However, demand is diverging from the price rally. The USDA export sales report showed net sales of 95,726 bales for the current marketing year for the week ended August 20, down 54% from the previous week; sales to China were only 1,628 bales, with zero for the next marketing year. China's slowdown signals that high prices are curbing demand, with mills preferring to draw down inventories or seek alternative sources.
This supply-driven rally against weak demand makes the sustainability of the uptrend uncertain. If weather speculation cools, prices may face correction; conversely, if quality ratings continue to slide, prices could test higher levels.