International cotton prices pulled back from two-year highs but still recorded a sixth consecutive weekly gain. As of August 28, the ICE December contract settled at 91.38 cents per pound, down 1.11% from the previous day, after touching an intraday high of 92.75 cents earlier in the week—the highest level since early 2024. This price action highlights a delicate tug-of-war between short-term profit-taking and medium-term supply concerns.
Background
The core driver behind the recent rally is not a single event but a combination of adverse weather in major producing regions. Persistent drought in Texas and a weak Indian monsoon threaten new-crop yields and quality. Senior Indian meteorological officials revealed that the country is facing its weakest monsoon in nearly two decades, with rainfall expected to be about 15% below the long-term average. This directly impacts India's cotton production outlook.
According to a report from the USDA Foreign Agricultural Service office in New Delhi, India's 2026/27 cotton production is forecast at 24.5 million bales, with planted area around 11.5 million hectares. Due to below-normal rainfall in August and September, yields are expected to decline 2% to 464 kg per hectare, with western and central India facing the highest risk of sustained drought. This suggests that India's output prospects are being systematically downgraded.
Meanwhile, the situation in Texas remains unresolved. As the largest cotton-producing state in the U.S., Texas weather directly impacts American cotton output and quality. Broker Keith Brown noted that Texas still faces problems, and the Indian monsoon is also in trouble, threatening global cotton supplies. This dual supply pressure keeps weather premium priced into the market.
Industry Impact
The ripple effects of high cotton prices are evident across the supply chain. For textile mills, raw material costs are rising, squeezing profit margins, especially for small and medium-sized enterprises that may face cash flow constraints. For traders and speculative funds, increased volatility means more trading opportunities but also higher risks.
It is worth noting that this price increase is not isolated. The El Niño weather phenomenon is expected to be particularly strong, potentially altering global rainfall patterns and affecting commodity prices. This means the weather premium in cotton prices could persist or even expand in the coming months. Buyers need to reassess inventory strategies to avoid missing restocking windows during pullbacks.
Inventory data shows that as of August 27, ICE deliverable No. 2 cotton futures stocks stood at 66,327 bales, unchanged from the previous day. Low inventory levels indicate tight physical supply, providing some price support. At the same time, a stronger dollar, lower U.S. stocks, and falling oil prices have dampened risk appetite, but cotton has shown resilience.
In the physical market, the Cotlook A index on August 28 was 101.30 cents per pound, up 300 points in a day. Physical prices remain above futures, suggesting that actual demand has not shrunk significantly despite high prices. This futures-spread structure typically implies cautious optimism about the market outlook.