Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Cotton Is Surging Past 80 Cents in July 2026
Transcript
- Lucas: Cotton is having a moment. Futures just hit 80.68 cents a pound — up more than 10 percent in the last five trading days. That is the highest level we have seen since late 2022. Luna: And this is happening while corn is also surging — up 10 percent in the same window — but wheat is only up four. What is driving cotton specifically? Lucas: Three things, really. First, Texas. The state grows about 40 percent of U.S. cotton, and it is in the middle of a serious dry spell. The latest USDA crop condition report showed that only 38 percent of the Texas crop is rated good or excellent. That is down from 46 percent this time last year. Luna: So the market is pricing in a smaller harvest before the bolls even open. Lucas: Exactly. Second factor is demand — specifically from China. Chinese mills have been buying aggressively. The USDA's export sales report last week showed net sales of U.S. cotton to China hitting a multi-month high. And this is not just restocking; China's own cotton production in Xinjiang has faced weather issues too. Luna: That makes sense. The third factor? Lucas: The acreage hangover from 2025. Last year, U.S. farmers planted the smallest cotton area in over a decade because prices were so low — they were trading in the low 60s. So even if yields are average, the total supply is going to be tight. Luna: And now you have this convergence of a supply scare and solid demand. But I have to ask — with recession fears still looming, does demand actually hold up? Lucas: That is the million-dollar question. Cotton is consumer-driven — apparel, home goods. If unemployment starts rising, people stop buying new jeans. But here is the nuance: global demand has been surprisingly resilient. The International Cotton Advisory Committee just raised its 2025-2026 consumption forecast by 1.2 percent. Luna: So the rally has fundamentals behind it. But is it sustainable at 80 cents? Lucas: I think it can hold if the Texas drought persists through August, which is the critical boil-development period. If we get rains, you could see a sharp correction. But the market is pricing in a risk premium right now, and it is not irrational. Luna: Speaking of pricing in risk — this also has a real-world impact on clothing prices. Retailers are probably watching this closely. Lucas: Absolutely. Apparel margins are thin. A 10 percent move in cotton futures usually takes about three to six months to show up at the register. So if you are wondering why your fall jacket costs five bucks more, this is part of the story. Luna: It is also interesting to contrast cotton with other fibers. Synthetic alternatives like polyester are tied to oil prices, which have been volatile but not spiking in the same way. Lucas: Right. Crude is actually down year-to-date. So the cotton-polyester spread is widening, which could shift some demand toward synthetics if cotton stays elevated. But for now, mills are still buying cotton. Luna: Let me ask you this — we have talked about supply and demand, but is there any speculative element here? Are hedge funds piling in? Lucas: They are. The latest CFTC commitment of traders report shows that money managers have increased their net long position in cotton futures by about 25,000 contracts over the past two weeks. So some of this move is momentum-driven. But the speculative interest is reacting to real fundamentals, not manufacturing them. Luna: So the takeaway for our listeners: cotton is rallying on a genuine supply squeeze, with demand holding up better than expected. But watch the weather in Texas and the next USDA supply-demand report. Lucas: Exactly. And if we step back — this is a good reminder that commodity markets don't all move together. While oil is down and gold is steady, cotton is showing that individual supply stories still matter a lot. Luna: It is also a reminder that understanding these micro stories can help you make sense of inflation and consumer prices in a way that just looking at CPI can't. Lucas: Speaking of which — you know, walking through the economy with us here every week, we try to connect those dots. And if that has made something click for you, or if you just enjoy the show, listener support is what keeps it ad-free and independent. Luna: Yeah, it really does. If you find value in our conversations, you can support us at buy me a coffee dot com slash fexingo. No pressure, just helps us keep doing this. Lucas: And it goes directly into making more episodes like this one. So thanks for considering it. Anyway — back to cotton. One more thing I want to flag: the USDA's world agricultural supply and demand estimates report comes out next week. That could be a big catalyst. Luna: What specifically should we watch for in that report? Lucas: Mostly whether they cut the U.S. yield forecast further. Right now the USDA is projecting 840 pounds per harvested acre. If that drops to 800 or below, you could see another leg up. Conversely, if they leave it unchanged, the market might take a breather. Luna: And what about export demand? Any signs of slowing? Lucas: Not yet. But there is a wildcard: if the dollar strengthens significantly, U.S. cotton becomes more expensive for foreign buyers. The dollar index has been steady lately, but if the Fed signals another rate hike, that could change. Luna: So basically, the rally has room to run, but the risks are real. Lucas: That is the commodity game. Every rally carries the seeds of its own reversal. But for now, cotton is the standout story in ags this month. Luna: Great breakdown, Lucas. I will be watching that USDA report with you.