Global cotton markets are being driven by a strong 'weather premium.' On August 28, the ICE December cotton futures contract settled at 91.38 cents per pound, down 1.11% on the day, after hitting an intraday high of 92.75 cents per pound the previous day, the highest since early 2024. This high-level volatility reflects the market's reassessment of global cotton supply certainty, with weather being the core variable.
Weather Anomalies: A Double Blow to Supply
Global cotton supply faces simultaneous tightening in both hemispheres. In Texas, the largest producing state in the US, drought conditions persist, directly threatening yields. Meanwhile, senior Indian meteorological officials revealed that the country is experiencing its weakest monsoon in two decades, with rainfall expected to be about 15% below the long-term average. India is the world's second-largest cotton producer, making its weather crucial to 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 around 11.5 million hectares. Due to below-normal rainfall in August-September, yields are expected to decline by 2% to 464 kg per hectare, with western and central India at highest risk of persistent drought. This implies that even if planted area remains stable, actual output may fall short due to lower yields, further tightening global supply.
Price Transmission: From Futures to Physical Market
The futures market has responded sharply. ICE cotton has climbed steadily since July, with August gains exceeding 12%. Despite profit-taking mid-week, the market posted a sixth consecutive weekly gain, with this week's rise of about 3.4% being the largest since early July. This sustained upward trend reflects substantive concerns about crop prospects, not just short-term sentiment.
The physical market has moved in tandem. On August 28, the Cotlook A index rose 300 points to 101.30 cents per pound. The synchronized rise in futures and physical prices means that raw material procurement costs for downstream mills are being systematically elevated. For Asian textile factories relying on imported cotton, this directly compresses profit margins and may trigger resistance to high prices, affecting subsequent purchasing pace.
Notably, the US dollar index strengthened while international oil prices edged lower, partially offsetting cotton's upward momentum. However, weather's substantive impact on supply currently outweighs macro headwinds. This year's El Niño is expected to be particularly strong, potentially altering global rainfall patterns, adding uncertainty to future price trends.
Inventory and Positioning: Two Sides of Market Sentiment
Inventory data shows that as of August 27, ICE-certified deliverable No.2 cotton stocks stood at 66,327 bales, unchanged from the previous day. This level is historically low, indicating tight deliverable supplies, supporting bulls. However, low inventories also mean that if weather improves or demand weakens, the scope for price correction could be amplified.
Market sentiment is currently 'cautious at highs.' On one hand, investors have largely priced in supply concerns; on the other, pre-weekend profit-taking suggests some funds are locking in gains. Under this dynamic, short-term prices are more likely to fluctuate in a high range rather than rally unilaterally.
Impact on the Supply Chain
High cotton prices are impacting the entire chain. For ginners, higher prices raise seed cotton procurement costs, but locking in forward sales can secure margins. For spinners, raw material cost pressure intensifies; if downstream demand fails to recover, profit compression is inevitable. For apparel brands, cost pass-through to retail prices may lag but could ultimately weaken consumer demand.