Cotton Prices Hit Two-Year High: A Supply Squeeze Choreographed by Weather, Geopolitics and Substitutes

93.14 cents per pound—that's where the ICE cotton futures for December settled on the last trading day of August, up 1.93% on the day and hitting an intraday high of 93.74 cents, the strongest level since early 2024. Over the month, the contract gained about 14%, marking a second consecutive monthly advance. The move to a two-year high appears weather-driven, but beneath the surface, a confluence of supply, geopolitical, and substitution factors is repricing procurement expectations across the textile chain.

Background

The immediate trigger is persistent hot, dry weather across key US growing regions, particularly Texas. Poor soil moisture and deteriorating crop conditions have fueled concerns over yields and total output. Expectations of a strong El Niño event have added a weather premium to prices. As one analyst put it, the rally stems from uncertainty—how much production will fall, how deep El Niño's impact will be, and how high oil prices can go.

Geopolitics added fuel on the cost side. After US strikes on an Iranian island, Tehran responded, escalating tensions around the Strait of Hormuz and pushing oil prices up more than 2% in a single day. Higher oil raises production costs for polyester, cotton's main substitute, which in turn bolsters cotton's competitiveness and provides additional price support.

Industry Impact

For textile mills, high cotton prices mean sharply higher raw material costs. Spinners and weavers that rely heavily on cotton face a dilemma: chase prices and squeeze margins, or hold off and risk supply gaps. The market widely expects the USDA's September 11 supply-demand report to confirm lower production, which could push prices even higher.

As cotton prices climb, the impact will gradually transmit to yarn and fabric prices. However, downstream apparel orders often adjust with a lag, leaving intermediate processors—spinners and weavers—caught between rising input costs and sticky output prices. Exporters should watch closely: if cotton keeps rallying, overseas buyers may resist higher quotes, and order momentum could slow.

Practical Advice

For Procurement Teams - Monitor the upcoming USDA report closely and plan phased purchasing to avoid panic buying after the data release. - Evaluate alternative fiber blends to balance cost and quality when cotton prices are elevated. - Use futures hedging to lock in forward raw material costs and mitigate price volatility.

For Exporters - Establish price adjustment mechanisms in contracts with clients to share the burden of raw material swings. - Track US-Iran tensions and oil price movements to assess logistics and currency risks on order profitability. - Shift product mix toward higher-value, differentiated items to reduce sensitivity to commodity prices.