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 2026 “bridge loans”, 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
On the supply side, USDA will refine their estimate of U.S. cotton production with several months of data flow (e.g., FSA certified acres, NASS grower surveys, NASS ginning surveys, and AMS classing data). This refinement is historically reflected by the narrowing of the percent monthly deviations of the first (August, at 13.61 million bales) to later (February) monthly forecast (see Figure 1 below).
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 1.6 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 U.S. export demand are weekly sales and shipments of U.S. cotton of U.S. cotton. The weekly 2025/26 export sales numbers were modest. Other export indicators like weekly shipments and total commitments were also relatively weak in their demand implication.
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.
