Cotton consolidates between 76-82/lb as rising US supply meets robust Chinese import demand

ICE cotton edged lower Friday. December settled at 79.98/lb, down 1.23 cents. Front-month contracts lost 7-129 points, while deferred months were mixed. The market has been stuck in a 76-82/lb range for weeks, after an aggressive rally toward 90/lb in June that fizzled.

The biggest bearish weight is USDA's July production estimate, which raised 2026/27 US cotton output to 13.7 million bales, reflecting an expected increase in planted area and trendline yields. The larger crop comes as US mill demand remains subdued, with domestic cotton consumption flat at roughly 2.5 million bales annually. The USDA estimate assumes abandonment rates that are reasonable but not generous, leaving room for production to exceed expectations if weather cooperates.

On the other side: strong Chinese demand. The USDA projects China will import a record 7.0 million bales in the 2026/27 marketing year, driven by rebuilding of China's state reserves and steady demand from China's textile industry. China's cotton imports have been running well above the five-year average, supported by competitive international prices and Chinese government policy to maintain strategic reserves. Brazil has emerged as China's preferred cotton supplier, displacing US cotton in some market segments.

The US Southwest drought situation adds complexity. Texas High Plains, the largest cotton-growing region in the US, has received below-normal rainfall through July. While cotton is a drought-tolerant crop, prolonged moisture stress during squaring and boll development reduces yields. The USDA Crop Progress report showed cotton conditions declining: good-to-excellent ratings were 53% as of the week ending July 20, compared to 58% the prior week, with Texas showing deterioration. The Southwest drought is the principal source of upside risk to cotton prices in the current environment.

Export sales data has been mixed. The weekly US export sales report shows total commitments in line with the pace needed to meet USDA projections, but new-crop sales have been uneven. China has been a steady buyer but not an aggressive one, suggesting they are price-sensitive and willing to accumulate when cotton dips toward the lower end of the trading range. Vietnam and Turkey have been active buyers of US cotton for their growing textile industries.

The competitive picture is changing. Brazil's cotton production has grown dramatically, reaching an estimated 12-13 million bales in 2026/27, making it the world's third-largest producer behind India and China. Brazilian cotton, which trades at a discount to US cotton in most markets, has been gaining market share in China and Southeast Asia. India's cotton production is recovering after pest and weather issues in prior years, which could further pressure US export volumes.

Analyst views match the range-bound market. The bull case emphasizes that another La Nina shift could intensify the Texas drought, that China's import demand will be price-inelastic if reserves need rebuilding, and that the current 80/lb level offers good value relative to production costs. The bear case counters that 13.7M bales of US production will be difficult for the market to absorb without a significant price incentive, and that the competition from Brazil and India limits the upside. EdgeClear notes the 76-82/lb range has held through big bullish and bearish headlines. That suggests real equilibrium at current levels.