International cotton prices pulled back from a two-year high but still posted a sixth consecutive weekly gain. On August 28, the ICE December cotton futures contract settled at 91.38 cents per pound, down 1.11% from the previous day, after hitting an intraday high of 92.75 cents per pound, the highest level since early 2024. This movement reflects a tug-of-war between weather premiums and profit-taking, with short-term volatility likely to increase.
Market Background
The core driver behind the rally is supply-side concerns. Texas continues to experience drought, while India's monsoon rainfall is expected to be about 15% below the long-term average, the weakest in nearly two decades. Statements from Indian meteorological officials have reinforced market expectations of tighter global cotton supplies. The USDA's Foreign Agricultural Service office in New Delhi projects India's 2026/27 cotton production at 24.5 million bales, with planted area around 11.5 million hectares. Yields may fall 2% to 464 kg per hectare due to insufficient rainfall, with western and central regions facing the highest risk.
Weather factors are not isolated. This year's El Niño is expected to be strong, significantly altering global precipitation patterns and systematically impacting commodity prices. Data shows cotton prices have risen over 12% this month, prompting speculative funds to take profits at high levels, pressuring futures. However, analysts note that adverse weather in key production areas supports prices, limiting downside.
Industry Impact
High cotton price volatility affects the supply chain differently. For upstream ginners and traders, weather premiums support profit locking, but inventory holding costs rise, requiring vigilance against sharp declines. For downstream textile mills, high raw material costs squeeze margins, leading to cautious procurement, possibly shifting to hand-to-mouth buying or seeking substitute fibers.
From a global supply perspective, India, as the second-largest producer, will directly impact international supply-demand balance. China, the largest consumer and importer, must monitor the transmission of higher import costs to domestic prices. Additionally, a stronger dollar and slightly lower oil prices exert some pressure, though limited.