US Cotton Futures at Two-Year High: The Triple Play of Weather, Oil, and Substitutes

On August 31, ICE cotton futures settled at 93.14 cents/lb, a two-year high, up about 14% for the month. This price level was last seen in early 2024. For the textile supply chain, the return of cotton prices to elevated levels is not an isolated event—weather risks, geopolitical tensions, and substitute costs are jointly reshaping the pricing logic of upstream raw materials.

Background

Persistent hot and dry weather in major US cotton regions is the core driver of this rally. Market expectations of lower production have strengthened, prompting funds to push prices higher. Meanwhile, the escalation of US-Iran conflict lifted international oil prices by more than 2.5% in a single day, raising production costs for polyester fiber and indirectly supporting cotton's competitiveness as a substitute.

Notably, US cotton futures have risen for a second consecutive month. The accelerating pace of gains suggests the market has shifted from a moderate rebound to a trend upward. Commodity analysts point to three key uncertainties: final output, the impact of El Niño, and the future trajectory of oil prices.

Industry Impact

High cotton prices directly impact downstream textile mills. Raw material costs account for over 60% of yarn production costs. The rally in futures is likely to transmit to spot prices within one to two months. For spinners using US cotton, this means significantly compressed margins, especially for those who have not locked in forward orders.

From a substitute perspective, higher oil prices raise polyester costs, reinforcing cotton's relative advantage. However, this logic is fragile—if geopolitical tensions ease and oil prices fall, cotton may lose some support. Moreover, the market awaits the USDA supply-demand report on September 11. If the actual production cut is less than expected, elevated cotton prices may face downward pressure.

For buyers, the current price already includes a significant weather premium. Blindly chasing rallies carries risks, but if production cuts are confirmed, prices could rise further. Companies are advised to weigh locking in forward supply against waiting for a pullback, based on their order cycles.

Practical Recommendations

For Purchasers - Monitor the USDA report release; avoid large purchases before the report, and consider buying in tranches. - Evaluate polyester substitution options; if oil remains high, cotton still has a cost advantage. - Negotiate long-term contracts with suppliers to lock in cotton costs for the next 2-3 months.

For Foreign Trade Companies - Include raw material price fluctuation clauses in quotations to hedge against cotton price volatility. - Closely track US cotton export data; if production cuts materialize, tight supply may push export quotes higher. - Consider using cotton options or other tools to manage price risk and avoid excessive single-direction exposure.