On August 27, the 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 marked the first time since early 2024 that cotton futures broke above the 90-cent threshold, with monthly gains exceeding 13%. The breakout was driven by deteriorating US crop conditions and strength in the grain complex, but export sales data painted a contrasting picture, revealing a widening gap between market sentiment and fundamentals.
Event Background
The latest USDA crop progress report showed that the good-to-excellent rating for US cotton fell to just 37%, down sharply from 54% a year earlier. Field tours indicated significant deterioration in crop conditions, and a strong El Niño is expected to alter rainfall patterns, adding further uncertainty to supply. Meanwhile, strength in grain markets provided additional support, pushing cotton futures higher on weather premiums and cross-market momentum.
However, demand has not kept pace. The USDA export sales report for the week ending August 20 showed net sales of current-crop upland cotton at 95,726 bales, down 54% from the previous week, with net sales to China at only 1,628 bales. For the next marketing year, net sales were 39,600 bales, with zero destined for China. The weak export data contrasts sharply with rising futures prices, indicating that the rally is supply-driven rather than demand-led.
Industry Impact
For international cotton merchants, the break above 90 cents raises hedging costs and pushes spot prices higher—the Cotlook A index rose 70 points to 98.30 cents on August 27. But shrinking export orders suggest that high prices are deterring downstream buyers, especially Chinese mills, which could trigger a pullback in the near term. For textile manufacturers, higher raw material costs will inevitably feed into yarn prices, but if final demand fails to absorb the increase, margins will be squeezed further.
From a broader perspective, this rally resembles the early 2024 price surge, driven by weather concerns and tightening supply expectations. However, the current global textile chain recovery is weaker, with European and US retailers still destocking and Chinese purchasing slowing. This implies that even if the supply story persists, the upside will be limited by demand constraints, and the market may enter a phase of high volatility and narrow trends.