A persistent drought across key U.S. cotton-growing regions is driving futures prices higher. On May 13, the ICE July cotton futures contract rose 0.49 cents to settle at 86.81 cents per pound, reaching its highest level since April 2024 intraday. The market's core trading logic is clear: dry conditions in Texas and the southern Cotton Belt are threatening the new crop's growth prospects.
Weather and Planting Progress: Drought Becomes the Dominant Short-Term Factor
The USDA's weekly crop progress report released on May 12 showed that as of that week, U.S. cotton planting had reached 29%, up from 21% the previous week and slightly above the five-year average of 28%. While the pace appears acceptable on the surface, industry insiders are more focused on soil moisture. Texas, the largest cotton-producing state in the U.S., is experiencing particularly severe drought, while conditions in the Delta and Southeast regions have improved only modestly and remain generally dry. A vice president at Price Futures Group noted that dry weather in the southern region is critical for cotton growth, heightening market concerns about supply.
Historically, drought during the planting season can negatively impact emergence and early growth. If subsequent rainfall is insufficient, the risk of a lower yield per acre increases significantly. For buyers, this means the pricing center for forward contracts may shift upward.
USDA Supply-Demand Report: Global Output and Stocks Point to Ease, but U.S. Variables Remain
The USDA's May World Agricultural Supply and Demand Estimates (WASDE) report, released on May 13, provided initial forecasts for the 2025/26 and 2026/27 seasons. It projects global cotton production at 122.64 million bales for 2025/26, with ending stocks of 77.27 million bales. For 2026/27, production is expected to decline to 116.04 million bales, with ending stocks falling to 71.84 million bales.
For the U.S., the USDA estimates 2025/26 production at 13.9 million bales and 2026/27 at 13.3 million bales. These figures are based on normal weather assumptions. If the drought persists, actual output will likely fall short of these estimates. The market has already priced in this risk, which is why futures did not drop sharply after the report—traders are waiting for clearer weather signals.
Notably, a different signal came from Brazil. Agricultural consultancy Safras & Mercado lowered its 2025/26 Brazilian cotton production estimate from 3.76 million tons to 3.74 million tons. Although the reduction is small, it suggests that uncertainties also exist in South American growing regions. As the world's second-largest cotton exporter, any change in Brazil's output will directly affect the global cotton competitive landscape.
External Market Linkages: Oil Prices and Macro Sentiment Provide Additional Support
The cotton market does not operate in isolation. On May 13, international oil prices remained above $100 per barrel, keeping the production cost of polyester—a cotton substitute—elevated, thereby enhancing cotton's relative competitiveness. Meanwhile, the S&P 500 and Nasdaq both closed at record highs, reflecting improved risk appetite and increased investor allocation to commodities.
However, the U.S. dollar index also rose, which puts some downward pressure on dollar-denominated cotton export prices and may dampen buying enthusiasm from overseas buyers. The direction of U.S.-China trade relations remains a focal point for the market, and any news regarding tariffs or purchasing agreements could trigger price volatility.
Transmission to the Supply Chain: From Futures to Spot, Cost Pressure Moves Downstream
In the spot market, the Cotlook A Index on May 13 stood at 96.15 cents per pound, down 150 points from the previous day. The divergence—futures up, spot down—reflects thin spot trading and cautious sentiment among downstream buyers. However, as futures prices continue to climb, imported cotton costs will gradually rise, likely feeding into Chinese port quotes and mill purchasing lists within one to two weeks.
For Chinese textile enterprises, the current U.S. drought theme is offset by the pace of domestic consumption recovery. On one hand, the U.S. is one of China's main sources of imported cotton, and expectations of a U.S. production shortfall will push up import costs. On the other hand, domestic downstream order recovery remains uncertain, and mills have limited capacity to absorb high-priced raw materials. This tug-of-war is likely to keep cotton prices in a high-range consolidation pattern in the near term.