Policy Uncertainty. Policy changes are a common source of surprises (“shocks”) to cotton market outcomes. Recent years provide numerous case studies. Some examples include India’s domestic minimum support price program; the U.S. 2018 farm bill updated with the commodity title elements in the 2025 Budget Reconciliation bill (“One Big Beautiful Bill”); the U.S.-China Phase One Agreement; the U.S. Market Facilitation Program; the U.S. CARES Act; U.S. trade sanctions on products from Xinjiang Province; and the periodic policy announcements of the Chinese National Development and Reform Commission, which include management of their cotton reserves, and cotton import quota announcements. The unexpected string of tariffs and counter-tariffs are the most recent example of policy shocks. The retaliatory tariffs by China on U.S. cotton should have minor impact because of the relatively small volume of U.S. cotton sold to China this year. However, the impact of the unexpected tariff announcements is increasing general uncertainty which can have a wet blanket effect on the cotton futures market.
Supply Uncertainty.
The cotton market continues to focus on the question of the size of the 2025 U.S. cotton crop. The first question is how much acreage was planted. Until we get more certified acreage data from USDA FSA, the working forecast of planted acreage is 9.277 million planted acres measured in USDA’s August 12 Crop Production report.
The forecast of production must then take into consideration crop progress and condition. The pace of U.S. boll setting and boll opening were, respectively, 6% and 2% off their five-year average pace, as of August 24, 2025. The associated condition rating for the 2025 Texas crop fell to 68. This is still in the upper half of historical ratings for this time of year (see chart below). The U.S. cotton condition index showed 54% “Good/Excellent” with another 33% “Fair” for the week ending August 17.
The weekly regional summaries (click here and scroll down) for Texas reflected a mixture of hot and dry conditions with scattered rainfall in some regions. The drought monitor map looks decent relative to previous years. Cotton harvest is wrapping up in South Texas and progressing well in the Coastal Bend, with reports of above average yields.
In the aggregate, USDA’s production forecast of 13.2 million bales of U.S. all cotton will be refined with improved information flow. That information flow includes additional grower survey data, forecasted ginnings, and a count of bales classed. The forecast refinement is historically reflected by the narrowing of the percent monthly deviations of the first (August) to later (February) monthly forecast (see Figure 1 below).
The most recent ginning forecast (as of August 1) reflects 6,500 running bales (or 6,679 statistical bales) ginned, which is 0.1% of NASS’s current production forecast of 13.21 million bales of U.S. all cotton.
The early 2025 crop classing reports (latest for week ending August 21) reflects 119,463 running bales (or 122,754 statistical bales), which is 0.9% of NASS’s current production forecast of 13.21 million bales of U.S. all cotton.
Global new crop cotton supply and demand of cotton has similar influences as those in the U.S. For example, foreign cotton production, among other variables, could be higher than currently projected. This could happen if India and Pakistan’s above average monsoon rains are a net benefit (i.e., lead to higher yields trump flood damage). It could also happen if Brazilian and Australian maintain trend-line production.
Demand Uncertainty. For U.S. cotton, the two main demand categories are domestic mill use and exports. Domestic U.S. consumption is forecasted by USDA at only 1.7 million bales. Exports are generally a more important source of demand as they represent over 80% of U.S. cotton use. The main indicators of export demand are weekly sales and shipments of U.S. cotton. Recent 2025/26 export sales numbers been disappointing. For example, the week ending August 21 saw moderate weekly net sales of U.S. cotton (i.e., a bit under 200,000 bales of upland). Given the low prices, that suggests a lack of strong demand. Meanwhile, Brazil and Australia are having very good crops. Brazil has reportedly been underselling U.S. cotton by five cents a pound by virtue of their greater productivity.
Lastly, there is the question of longer term demand. I am cautious about the possibility of macro headwinds related to world GDP, inflation, and central bank policy. Stagflation is a possible risk that is historically associated with declining cotton demand. Short of that, just having low, slow growth in the world economy could deprive the cotton market of sustained price support, leaving only the volatile and short lived weather market influence discussed above.
