The condition of cotton in the main producing regions of the United States is flashing warning signs. According to the latest USDA crop progress report, the good-to-excellent rate for US cotton fell to 46% as of the week ending July 5, down 2 percentage points from the previous week and a significant 6 percentage points below the 52% recorded a year ago. This data has directly triggered market concerns about tightening supply in the global cotton market—for northern hemisphere cotton still in its critical growth phase, a persistent decline in the good-to-excellent rate often implies an increasing risk of lower final yields.
Deconstructing the Growth Data: Supply Risk Moving from Expectation to Reality
A closer look at other growth indicators also reveals a weakening signal. The current squaring rate stands at 49%, higher than the 37% of the previous week but flat compared to 49% a year ago and below the five-year average of 50%. The boll-setting rate of 14% is in line with the five-year average, but last year it was 13%, indicating no catch-up momentum this season. Notably, the squaring and boll-setting stages are the critical windows for determining cotton yield and fiber quality. If weather conditions do not improve in the coming weeks, the risk of a production shortfall will shift from expectation to reality. For Chinese textile mills that rely on US cotton imports, this means upward pressure on raw material procurement costs, especially for high-grade cotton, whose premium is likely to widen further.
Futures Market Reaction: Gains Partially Priced In, Caution on Chasing
The futures market has confirmed the market's digestion of the production-cut expectations. The main 2609 contract on the Zhengzhou Commodity Exchange closed at 16,265 yuan/ton on July 6, up 80 yuan/ton from the previous trading day, with open interest expanding to 581,300 lots. The price action suggests that the market has already begun to price in the deterioration in US cotton conditions, establishing a short-term bullish trend. However, caution is warranted. Current futures prices already reflect a significant portion of the expected production cut, and the final output will depend on weather developments in August and September. If rains return or the good-to-excellent rate stabilizes, the accumulated premium could quickly evaporate. Historical data shows that a mid-to-late July rebound in the US cotton good-to-excellent rate is not uncommon, so the risk of chasing prices higher is increasing.
Industry Chain Transmission: Cost Pressure from Raw Materials to Fabrics
The transmission of US cotton production-cut expectations does not stop at the futures board. For downstream cotton textile mills, rising raw material costs directly compress processing margins. Domestic cotton spot markets in China have already shown signs of following the uptrend, with the price gap between Xinjiang cotton and imported cotton narrowing. Given that China imports a substantial volume of US cotton annually for high-count yarn and high-quality fabric production, a tighter US cotton supply will push up import quotations, thereby raising the overall cost center of domestic cotton. For buyers of knitted and woven fabrics, controlling costs for second-half orders will become more challenging, and it is advisable to lock in forward supply volumes early.