Cotton entered a new marketing year on Aug. 1, wrapping up the 2025/26 season. The shift to a new crop year is always a good opportunity to review how supply and demand fundamentals have performed and where they look to be headed. USDA has also made changes to Marketing Assistance Loans and other government programs that take effect in the 2026/27 crop year.
Demand
The demand side of the balance sheet is straightforward in cotton. Corn and soybeans have numerous uses tracked such as ethanol, feed, or crush, while consumption of cotton is simply broken into foreign (exports) or domestic (mill use) demand.
Exports for the 2025/26 marketing year totaled 11.58 million running bales, down 49,000 from the previous year. After converting to standard 480-pound bales, exports are likely to end between 12 million and 12.2 million depending on variation in bale weights. That compares to the initial WASDE estimate of 12.5 million bales for the crop year. The top export destination was Vietnam with 3.92 million running bales shipped. Shipments to China for the year were 612,000 running bales. Cotton purchases by China have historically been volatile. Since the country normally produces most of its own consumption, China’s cotton yields are a particularly important factor for how much it will be interested in importing.
A trade deal with Indonesia was one bright spot for the cotton industry. The country agreed to buy 163,000 metric tons (roughly 750,000 480-pound bales) of cotton from the U.S. each year for the next five years. A trade deal was also signed with Bangladesh, though that agreement has no specific amount of purchases mentioned for cotton. Still, the country is a textile hub that consumes sizable amounts of fiber each year and has shown an interest in purchasing U.S. agricultural goods in return for reduced tariffs.
The increase in Economic Adjustment Assistance for Textile Mills payments, an incentive for domestic mills to use U.S.-grown cotton, from 3 to 5 cents per pound has not shown the ability to reverse the decades-long downtrend in U.S. cotton consumption thus far. In the retail sector, consumer health also continues to remain a point of contention. Inflation in retail apparel has run hot as of late, increasing eight of the last 10 months and in May 2026 notched a 4.8% year-over-year increase that was the highest since the post-pandemic rush.
Supply
The U.S. cotton crop saw an extremely dry spring, which helped prices rally in the first half of this year. Drought in the southern U.S. eased substantially though, with cotton acres impacted by drought peaking at 98% on May 5, whereas they currently stand at 41% as of August 4. Cotton is a remarkably resilient crop, and while early-season dryness may have taken the top end from some yields, few major concerns exist at this time.
USDA currently rates the U.S. crop at 42% good to excellent compared to the five-year average of 48% for the first week of August. Condition ratings in Texas show 30% of acres as very poor to poor. Regression analysis on previous ratings in the first week of August compared to historical abandonment shows roughly 167,000 acres of cotton are expected to be abandoned compared to 130,000 acres last fall.
The agency’s yield expectations sit at 872 pounds per acre, up 20 pounds from last year, though the first survey-based results will not be published until Aug. 12. Ending stocks are expected to decline 100,000 bales from last year to 4.1 million, with the stocks-to-use ratio declining roughly 1% to 29.5% as a result.
Other major world producers have faced conditions that are slightly more bullish. The seasonal monsoon in India was late this year and caused difficulties planting into the extremely dry earth, causing acres to drop 4% from last year. The monsoon did eventually return and boost crop conditions, but the decline in acreage from last year is still likely to limit production somewhat. In China, conditions have fared well up to now but the outlook for the Xinjiang region in August appears particularly hot and dry, which could open the door to interest in U.S. cotton.
Globally, USDA sees stocks-to-use in 2026/27 at 58.4%. That’s down from 63.1% last year, and the lowest since 2020/21, which should help keep world prices from reaching the deep lows notched in 2025/26 if realized.
Program Changes
As part of the “One Big Beautiful Bill” act passed last year, changes are also coming to cotton programs that will alter the way some government programs are administered.
The most important to cotton growers is likely the three-cent increase in the Marketing Assistance Loan (MAL) base rate to 55 cents per pound. The MAL program provides farmers a loan to help meet immediate cash flow needs while retaining possession of the crop until prices have rebounded from the usual harvest lows. Further details on the program and 2026 changes from USDA can be found here.
Farmers who do not utilize the MAL program receive increased support, too. USDA is updating the method by which it calculates the Adjusted World Price (AWP) of cotton by taking the three lowest bids as opposed to the five lowest bids around the globe, resulting in a lower AWP compared to the previous methodology.
That AWP is used to determine if a Loan Deficiency Payment (LDP) will be allowed for farmers who have not taken a MAL. An AWP below the now 55-cent base loan rate triggers a payment for the difference in price. For example, an AWP of 54 cents would result in a 1-cent-per-pound payment.
The program helps support farmers during periods when world prices are poor and limit the competitiveness of U.S. exports. While it is not every year that an LDP is induced, the change offers support when cotton prices are typically at their lowest. Just last year, the AWP spent numerous weeks positioned between 52 and 55 cents and saw no payments, something that would change under current legislation.