Cotton futures retreated from a two-year high on August 28, with the ICE December contract falling 1.03 cents to 91.38 cents per pound, a 1.11% drop. However, the pullback did not break the sixth consecutive weekly gain, with a weekly rise of about 3.4%, the largest since early July. The market is experiencing a typical tug-of-war between "weather premium" and "profit-taking," which is unlikely to subside soon.
Market Background
The core driver behind the recent rally is abnormal weather in major cotton-producing regions. 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. Senior Indian meteorological officials' comments have further intensified concerns over global cotton supply for 2026/27.
According to the USDA Foreign Agricultural Service office in New Delhi, India's cotton production in 2026/27 is projected at 24.5 million bales, with planted area around 11.5 million hectares. Yield is expected to decline 2% to 464 kg per hectare, with the western and central regions facing the highest drought risk. This suggests that India, the world's second-largest producer, is seeing its output outlook systematically downgraded due to weather.
Industry Impact
For the textile chain, high cotton prices are transmitting cost pressure downstream. For spinning mills and weaving enterprises that rely heavily on cotton, raw material costs typically account for over 60% of total costs. Current prices above 91 cents per pound are near two-year highs, meaning spinning margins are significantly squeezed. If the weather premium persists, some small and medium factories may reduce output or delay restocking.
From a procurement perspective, the core contradiction lies between "supply fears" and "high prices." On one hand, a strong El Niño is expected to alter rainfall patterns, potentially affecting yields in the Northern Hemisphere. On the other hand, ICE deliverable stocks remain at 66,327 bales, with no significant drawdown, indicating no actual physical shortage. Such a gap between expectations and reality often leads to heightened volatility.
Notably, a stronger US dollar and the Fed's policy stance are also pressuring commodities. Fed Chair Warsh reiterated his anti-inflation stance, raising rate hike expectations, and a stronger dollar typically weighs on dollar-denominated cotton. Therefore, while weather supports prices in the short term, macro headwinds cannot be ignored.