93.14 cents per pound — that was the settlement price of ICE cotton futures for December on August 31, with the contract touching 93.74 cents intraday, the highest since early 2024. The monthly gain reached 14%, marking a second consecutive monthly rise. Behind these numbers lie severe heat and drought in key US growing regions, which have damaged production expectations, and geopolitical tensions that have lifted energy prices and raised the cost of polyester, cotton's substitute. For Chinese textile mills relying on imported cotton, the cost balance is shifting.
Background
The rally is not driven by a single factor. Texas and other core cotton areas experienced extreme heat during the critical growing period, with soil moisture deteriorating, fueling concerns about lower yields. Meanwhile, the US-Iran conflict pushed international oil prices up more than 2% in a single day. Higher oil prices mean higher production costs for polyester, making cotton relatively more competitive, which further supports cotton prices.
More importantly, the market is positioning for the USDA supply-demand report due September 11. Many traders expect the report to lower US cotton production estimates, giving bulls more reason to add positions. Kansas-based analyst Sid Love said that with production uncertainty, El Niño impacts still unclear, and oil price trends unpredictable, cotton prices may continue to rise until demand visibly falters.
Industry Impact
High cotton prices affect the textile chain unevenly. For mills producing high-count combed yarns, cotton accounts for a large share of costs, squeezing margins directly. Producers of low-count or blended yarns may adjust the polyester-cotton ratio, but polyester prices are also rising due to oil, limiting substitution. Thus, cost pressure will pass down the chain.
From a procurement perspective, rising cotton prices may trigger a wave of stockpiling, but the risk of a sharp correction should not be ignored. Historically, when futures prices outpace fundamentals, volatility increases. Domestic textile enterprises should watch the correlation between Zhengzhou cotton futures and international prices, avoiding chasing highs. Geopolitical uncertainty also raises logistics and exchange-rate risks, so foreign trade quotes need more flexibility.
Practical Advice
For Purchasers - Build positions in batches, avoid large one-time purchases, and use options or forward contracts to lock in some costs. - Watch the price volatility window around the USDA report release; set target prices and stop-loss levels in advance. - Evaluate the polyester-cotton spread and optimize blending ratios where technically feasible to reduce single-material risk.
For Foreign Trade Companies - Include raw material price fluctuation clauses in quotes and agree on floating pricing mechanisms with clients. - Shorten the validity period of quotes to avoid profit erosion due to sharp cotton price swings. - Monitor exchange rates and freight costs, clearly define risk-sharing terms in contracts to ensure performance security.
Cotton prices at a two-year high reflect both weather and geopolitical factors, as well as market expectations of future supply-demand balances. Textile enterprises should look beyond daily fluctuations and adopt a longer-term perspective on raw material cost management. Until the supply contraction expectation is disproven, maintaining flexibility and prudence may be the best strategy to navigate uncertainty.