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 certified acreage data from USDA FSA, the working forecast of planted acreage is 10.12 million planted acres measured in USDA’s June 30 Acreage report.
The forecast of production must then take into consideration crop progress and condition. The pace of U.S. cotton squaring and boll setting was 3% and 2% under the five-year average pace, respectively, as of July 207, 2025. As of July 20, the condition rating for the 2025 Texas crop rose to 69. This is in the upper half of historical ratings for this time of year (see chart below). The U.S. cotton condition index showed 55% “Good/Excellent” with another 31% “Fair” for the week ending July 27.
Global new crop cotton supply and demand of cotton has similar influences as those in the U.S. For example, USDA’s July WASDE reported projected a similar level of new crop ending stocks as the prior marketing year. However, new crop production, among other variables, could be higher than currently projected, especially if India and Pakistan have above average monsoon rains.
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 a little over two 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. Early in the marketing year, I see it as an indicator of weak demand.
Another wrinkle to the global supply questions, and hence the specific demand for U.S. exports, is how are main competitors are doing. Brazil and Australia are our main competitors, and they have having very good crops in recent years.
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.
