ICE cotton futures for December settled at 91.38 cents/lb on August 28, down 1.11% on the day, yet still posted a sixth consecutive weekly gain, up about 3.4% for the week. After touching a two-year high of 92.75 cents on Thursday, the market is now caught between weather premium and profit-taking.
Market Background
The rally is fundamentally supply-driven. Drought persists in Texas, and India's monsoon rainfall is expected to be about 15% below the long-term average, the weakest in nearly two decades. USDA's FAS office in New Delhi projects India's 2026/27 cotton output at 24.5 million bales, with yields down 2% to 464 kg per hectare, with western and central regions at highest risk.
Weather is not an isolated factor. This year's El Niño is expected to be particularly strong, significantly altering global rainfall patterns and amplifying supply uncertainty. ICE data showed certified stocks at 66,327 bales as of August 27, unchanged from the prior session, with low inventories underpinning bullish sentiment.
Industry Impact
For the textile chain, high cotton prices translate into cost pressure moving downstream. At 91 cents, prices exceed most mills' budget lines, especially for export-oriented spinners whose margins are squeezed. If Indian output falls, tighter global supply could push forward prices higher.
But short-term correction risks remain. Profit-taking is only the surface; the deeper question is whether the weather premium is sustainable. Cotlook A index at 101.30 cents on August 28, a nearly 10-cent premium over futures, suggests spot demand is reluctant to follow. Once weather speculation cools, prices could quickly give back gains.
For buyers, chasing highs is not advisable, but staying out entirely is also risky. Watch support near 90 cents for December; a break could trigger a deeper correction. Meanwhile, monitor Texas and Indian monsoon data, as these will determine whether the weather premium persists.