【Wdoodoo Weekly Cotton Report】Drought in U.S. cotton continues to intensify, with domestic demand closely monitored

Cotton continued to fluctuate and rise both internally and externally this week. CF01 closed at 17180 yuan/ton, up 115 yuan/ton month on month; National cotton 3128B closed at 18130 yuan/ton, up 170 yuan/ton month on month. The expectation of cotton production reduction in the United States has increased, and the domestic production rate of gauze has rebounded, causing cotton prices to hit a previous high.

1. Macro support tends to be bullish.

The geopolitical premium continues to exist, and the PCE price index in the United States remained unchanged at an annual rate of 3.7% in July. Federal Reserve Chairman Walsh's hawkish speech at the Jackson Hole Conference interrupted the weak pace of the US dollar. However, it is expected that the policy space in the United States is limited, and the expectation of a rate hike in September is not high. We will continue to pay attention to the impact of changes in long-term bond interest rates on US policy choices. The expectation of stable domestic growth policies is heating up, and the September China US summit is expected to provide more support for commodities.

2. The weather disturbance continues to ferment.

The continuous fermentation of drought in the main cotton producing areas of the United States is the core driving force of this round of rise, and El Ni ñ o expectations provide long-term weather surges. The US cotton drought continues to worsen, and the expectation of reduced production is rising. As of August 25th, the drought severity and coverage index of the main cotton producing areas in Japan is 159, with a month on month increase of 32 and a year-on-year increase of 99; The drought severity and coverage index in Texas is 183, with a month on month increase of 47 and a year-on-year increase of 116. As of August 23rd, the excellent growth rate of cotton in the main cotton growing states in the United States was 37%, a decrease of 1 percentage point compared to the previous week and a decrease of 17 percentage points compared to the same period last year. Among them, the excellent growth rate of cotton in Texas is 19%, with a decrease of 2 percentage points in the weekly cycle ratio and a decrease of 30 percentage points compared to the same period last year.

At present, the cotton growing areas in Xinjiang, China, have entered the period of boll opening. The continuous high temperature from June to August has led to an increase in the shedding of buds and bells, but the market's expected production decline may be relatively small.

3. Selling and importing effectively replenish the supply of old works.

From August 24th to August 28th, a total of 40100 tons of reserve cotton resources were sold, with a total transaction volume of 40100 tons and a transaction rate of 100%. The average transaction price is 17463 yuan/ton, with a discounted price of 18172 yuan/ton at 3128, and an average markup of 1184 yuan/ton.

Reserve cotton wheel exports and imports effectively supplement the gap of old works. Based on the current daily listing volume of 8000 tons of reserve cotton, a total of 420000 tons have been listed as of September 30th. In the fiscal year of 25/26 (2025.9, 2026.7), the cumulative import of cotton reached 1.53 million tons, a year-on-year increase of 530000 tons.

4. Demand during peak season is gradually recovering.

The traditional peak season in the downstream is gradually approaching, and the operating rate of gauze factories is starting to rise, with an improvement in production and sales margins. The comprehensive load of the yarn is 51.8, and the circumference ratio has increased by 1.5; The load of cotton embryo fabric is 56, and the circumference ratio has increased by 1.7, with a significant growth rate. In terms of finished product inventory, the cotton yarn inventory of textile enterprises was 19.8 days, a decrease of 4 days compared to the previous week; The inventory of cotton embryo fabric is 31.6 days, a decrease of 1.4 days compared to the previous week, indicating a significant decrease in inventory rate. However, due to the low price difference of floral yarn during the same period, there has been no significant increase in purchasing volume, and a strong upward driving force has not yet been formed.

Overall, due to the worsening drought in the US cotton market and global El Ni ñ o expectations, the strong rise in the external market has driven Zhengzhou cotton to fluctuate upwards. However, the price difference of floral yarn is low, and the pressure of selling and storing continues. The middle and lower reaches believe that the current market is facing sufficient trading expectations for production reduction, and are relatively cautious in chasing higher prices. Be cautious when dealing with long orders and focus on long calls. Pay attention to the pressure around 16800 below Zhengmian 01 and 17500 above it. Reduce inventory in the high part.