On August 28, ICE cotton futures for December delivery fell 1.11% to 91.38 cents per pound, down 1.03 cents from the previous session. While this appears to be a routine profit-taking pullback, in the context of six consecutive weekly gains and a monthly advance exceeding 12%, the correction looks more like a technical breather after a weather-driven rally. For textile mills, the key issue is not the single-day move but how long supply-side uncertainty can sustain prices.
Background
The immediate trigger was investors locking in profits after prices hit a two-year high. The December contract touched 92.75 cents on Thursday, the highest since early 2024, before profit-taking on Friday. Keith Brown, a cotton broker in Georgia, noted that after such a sharp surge, weekend profit-taking was natural. Yet the contract still gained about 3.4% for the week, the largest weekly advance since early July, indicating that bullish momentum remains intact.
Underpinning the price rally is a chain of supply warnings. Texas, the largest U.S. cotton state, faces persistent drought. In India, two senior meteorology officials reported the 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, so its weather has outsized influence on international prices. A USDA FAS report from New Delhi projects India's 2026/27 cotton output at 24.5 million bales from 11.5 million hectares, with yields down 2% to 464 kg per hectare due to below-normal August-September rains, with western and central regions most at risk.
Industry Impact
Weather is reshaping price expectations. This year's El Nino is expected to be particularly strong, altering rainfall patterns and likely fueling repeated weather premium trading in other growing regions. For textile mills, input cost uncertainty is rising: current prices above 91 cents are historically high, squeezing spinning margins, while supply concerns could push prices higher. The Cotlook A index rose 300 points to 101.30 cents on August 28, signaling tightness in physical markets and immediate pressure on buyers.
Transmission to downstream sectors is often delayed. Cotton typically accounts for about 70% of yarn costs, and futures moves usually pass through to yarn prices within one to two months. Many Chinese mills are adopting a hand-to-mouth buying strategy to avoid inventory losses. However, if international prices remain firm, imported cotton costs will force domestic prices to follow, further compressing margins for mid- and downstream players. Notably, ICE deliverable stocks held at 66,327 bales, unchanged from the prior session, suggesting market participants are trading expectations rather than physical supply.