The market speculation fueled by the high temperatures and drought in the United States, which has led to an increase in abandonment, has been ongoing for over a month. The market had already anticipated this downward revision in production, but there was still a frenzied reaction when the report was released. The reason behind this reaction is that although the drought conditions are worsening, the current growth conditions of US cotton are not considered too poor.

As of Aug 8, the drought severity and coverage index for the main cotton-producing regions in the US (92.8%) was at 118, which is 125 lower compared to the same period last year, with an increase of 19 from the previous week. The drought severity and coverage index for Texas was at 198, which is 182 lower compared to the same period last year, with an increase of 42 from the previous week. It can be seen that the soil moisture conditions are much better than the same period last year. Therefore, the market estimated a downward revision of around 200,000 to 300,000 tons, which seemed reasonable. However, the unexpected downward revision of 550kt and the yield being lowered to below last year's level took many by surprise.

Currently, bullish funds have not significantly withdrawn yet. It remains to be seen whether ICE cotton will move lower first and then gradually be in correction. It is important to continue monitoring whether the weather will further deteriorate and the impact will have on cotton growing.