On August 28, the most-active ICE cotton contract for December settled at 91.38 cents per pound, down 1.11% on profit-taking. However, the contract posted a sixth consecutive weekly gain, with monthly gains exceeding 12%, after touching a two-year high of 92.75 cents on Thursday. High-level volatility and intensified long-short battles characterize the current market.
Supply Side: Weather Variables Persist
The core logic behind the rally is weather disruptions in major producing regions. Texas, the largest US cotton state, still faces drought. In India, meteorological officials report the weakest monsoon in nearly two decades, with rainfall expected to be about 15% below the long-term average. This directly threatens yields: USDA's FAS in New Delhi projects 2026/27 Indian cotton production at 24.5 million bales on 11.5 million hectares, but yields may fall 2% to 464 kg/ha due to below-normal August-September rains, with western and central regions at highest risk.
These data point to a key judgment: the expectation of tighter global supply is unlikely to be disproved in the short term. This year's El Niño is expected to be particularly strong, significantly altering rainfall patterns and potentially impacting commodity prices. For textile enterprises, this means raw material procurement costs may systematically shift higher, not just short-term fluctuations.
Demand and Macro: Pressure and Support Coexist
Compared with strong supply-side support, demand and macro factors are more complex. On August 28, the dollar index rose, US stocks fell, and Fed Chair Warsh reiterated his anti-inflation stance, increasing the likelihood of rate hikes and making investors cautious. Oil prices also fell as traders assessed Fed signals and reports of a potential shipping deal in the Strait of Hormuz. These macro factors pressured dollar-denominated cotton, explaining the pullback despite supply concerns.
In the spot market, the Cotlook A index rose 300 points to 101.30 cents per pound on the 28th, indicating spot prices are still following higher, but the futures profit-taking suggests divergence in acceptance of high prices. ICE data showed deliverable stocks at 66,327 bales as of August 27, unchanged from the previous session, with low inventories providing some support.
Industry Impact: Cost Pass-Through and Procurement Strategy Adjustments
High-level cotton volatility is beginning to transmit through the supply chain. For mills, cotton accounts for a large share of costs; each 1-cent rise adds about $22 per ton, squeezing margins. Especially for producers of mid-to-low count yarns and conventional fabrics, limited pricing power means greater operational pressure.
Meanwhile, the risk of lower Indian output implies that global supply elasticity may be less than expected in coming months. If the monsoon worsens, USDA may further cut India production estimates, potentially pushing prices higher again. Buyers should recognize that current highs are not a "bubble" but a fundamentally supported "new equilibrium," though the equilibrium point may shift with weather developments.