91.38 cents per pound—that was the settlement price of ICE cotton futures for December on August 28, down 1.11% from the previous day. The single-day decline seems modest, but against the backdrop of six consecutive weekly gains and a monthly increase of over 12%, this pullback looks more like a signal of high-level volatility than a trend reversal.
Weather Premium: Triple Pressure on Supply
The core support for current cotton prices comes from abnormal weather in major global producing regions. Drought persists in Texas, and India is experiencing its weakest monsoon in two decades, with rainfall expected to be about 15% below the long-term average. The USDA Foreign Agricultural Service office in New Delhi projects India's cotton yield for 2026/27 to decline 2% to 464 kg per hectare, with the highest risk in western and central regions. This means supply prospects are deteriorating simultaneously in the world's two largest cotton producers, systematically embedding a weather premium into prices.
El Niño could amplify this impact. Meteorological agencies predict a strong El Niño this year, which would significantly alter rainfall patterns. For cotton, a crop sensitive to moisture, weak monsoons and drought combined could lead to repeated downward revisions in production forecasts. For textile mills, this means increasing uncertainty in raw material costs and greater difficulty in forward purchasing decisions.
High Prices: The Dual Role of Sentiment and Capital
Profit-taking after prices hit a two-year high is a natural release of market sentiment. ICE data showed deliverable stocks at 66,327 bales as of August 27, unchanged from the prior day, indicating no sudden deterioration in fundamentals. A stronger dollar and lower US stocks also pressured commodities, as the Fed's anti-inflation stance raised rate hike expectations, making capital more cautious.
Notably, the market still posted a sixth consecutive weekly gain, with this week's rise of 3.4% being the largest since early July. This shows that supply concerns have not faded, and any weather news could trigger new volatility. For textile companies relying on imported cotton, current prices are at multi-year highs, and the risk of chasing rallies has increased significantly.
Industry Impact: Cost Transmission and Procurement Strategy
High cotton prices will directly push up yarn production costs, especially for medium-to-high count yarns using US and Indian cotton. Domestic textile enterprises face a dilemma: rising raw material costs squeeze profits, while downstream order price transmission lags. Historically, weather-driven cotton prices tend to spike and then correct sharply; excessive chasing may lead to inventory devaluation risks.
For foreign trade companies, international cotton price fluctuations pass through to export quotes via import costs. The Cotlook A index has risen to 101.30 cents per pound, significantly higher than earlier, meaning contract costs based on this index have increased. Companies should monitor basis changes and use futures tools for hedging.