The cotton market is witnessing a tug-of-war between profit-taking after prices hit a two-year high and supply concerns from adverse weather in major producing regions. On August 28, the ICE December cotton futures contract fell 1.11% to 91.38 cents per pound, yet still posted a sixth consecutive weekly gain, with a weekly rise of about 3.4%, the largest since early July. This high-level volatility reflects persistent market sensitivity to supply-side risks.
Background
The core driver behind the recent price surge is supply uncertainty. Texas, the largest cotton-producing state in the U.S., continues to face drought threats, deteriorating crop prospects. Meanwhile, Indian meteorological officials report the country is experiencing its weakest monsoon in nearly two decades, with rainfall expected to be about 15% below the long-term average. India accounts for roughly a quarter of global cotton production, making its monsoon performance critical to the global supply-demand balance.
A report from the USDA Foreign Agricultural Service office in New Delhi projects India's 2026/27 cotton output at 24.5 million bales from about 11.5 million hectares. However, with below-normal rainfall expected in August-September, yields are forecast to decline 2% to 464 kg per hectare, with the western and central regions facing the highest drought risk. This suggests that even with stable planting area, actual output may fall short of expectations, further tightening global supplies.
Industry Impact
For the textile supply chain, high cotton prices translate directly into cost pressures. For spinners, raw material costs typically exceed 70% of total costs, and sustained price strength erodes profit margins. Small and medium-sized mills, lacking hedging tools, face greater operational strain. Downstream fabric and apparel makers may encounter rising order costs and reduced bargaining power.
From a trade perspective, the Cotlook A index has risen to 101.30 cents per pound, significantly higher than earlier lows. Increased import costs may prompt some buyers to shift to substitute fibers or adjust purchasing schedules. However, supply concerns are not short-term—this year's El Niño is expected to be particularly strong, significantly altering rainfall patterns and potentially impacting commodity prices throughout the crop year. This suggests medium-term support for cotton prices remains intact, and the current pullback may present a phased opportunity.