16825 yuan per tonne - this was the closing price of the main Zhengzhou cotton futures contract on September 3, down another 110 yuan from the previous day. Just a day earlier, the market had lost the key psychological level of 17,000 yuan. For the textile industry chain, this number is not merely a futures quotation; it signals that pricing negotiations between upstream and downstream have entered a critical phase as the traditional peak season approaches.
Supply and demand balance tilts
The International Cotton Advisory Committee (ICAC) released its latest monthly report on September 2, providing a macro reference: global cotton production for 2026/27 is estimated at 26.2 million tonnes, while consumption is expected at 25.9 million tonnes. The 300,000-tonne surplus may seem modest, but it is enough to overturn the previous narrative of tight supply. Barring major weather disruptions, the new season's global cotton balance is shifting from tight to slightly loose, structurally capping prices.
However, analysts widely believe this surplus is not robust. Cotton's growing season is far more variable than other bulk agricultural commodities. Weather anomalies, pest outbreaks, and other risks could easily shrink or even eliminate the surplus. In other words, the current balance sheet is more a theoretical exercise, with the real answer pending the conclusion of the northern hemisphere harvest. This uncertainty is the underlying reason why prices are hovering around 17,000 yuan.
Market sentiment under combined pressure
The decline is not isolated. ICE cotton had risen sharply earlier, pricing in most positives, leaving little fresh upward momentum. Meanwhile, hawkish remarks from US Federal Reserve officials added macro pressure, dampening risk appetite. With crowded long positions and heavy trading at higher levels, even minor negative news triggered profit-taking, accelerating the pullback.
On the domestic front, the downstream textile sector is in its traditional peak season. Yarn and fabric mills have raised operating rates steadily, and cotton yarn shipments have improved slightly week-on-week, indicating marginal demand recovery. However, the recovery is weaker than expected, with high industry inventories and slow destocking of cotton yarn. Regular reserve cotton auctions continue to supplement market supply, keeping spot transactions subdued and sentiment cautious.
This pattern of falling futures, stable spot, and weak downstream demand demands more sophisticated procurement strategies. Chasing rallies is not advisable, but excessive bearishness also risks missing rebounds driven by weather.
Two opposing forces: new domestic cotton and US cotton
Domestically, Xinjiang cotton has entered its key boll-opening period, with growth ahead of last year's pace. Based on current development, defoliant spraying will begin in early September across major production areas, potentially bringing machine-picked cotton to market earlier than usual. Weather conditions are generally favorable - southern Xinjiang is dry with little rain, suitable for boll opening and sun-drying; northern Xinjiang saw only sporadic showers early in the week, with minimal disruption. Earlier new cotton supply means market pressure will arrive sooner than in previous years, weighing on old-crop prices.
Internationally, the US cotton situation is bearish. US cotton is entering its boll-opening phase, but growth lags, drought is worsening in key regions, and crop condition ratings continue to decline. Forecasts indicate persistent high temperatures and little rain this week, potentially exacerbating drought. Market expectations of reduced US production are strengthening, and upcoming condition and abandonment data will be critical for ICE prices.
A faster domestic harvest versus expectations of lower US output create a divergence between internal and external cotton prices. For mills relying on imported cotton, US production cuts imply stronger external price support and higher import costs, while earlier domestic supply may cap local spot prices. The resulting spread changes deserve close monitoring.
Short-term range-bound, awaiting catalysts
In summary, the cotton market is caught in intense long-short battles, exhibiting a typical pattern of pressure from both sides. On the support side, El Niño-related weather disruptions fuel global production cut expectations, domestic inventories remain at mid-to-low levels, and the traditional "Golden September" demand outlook underpins prices. On the pressure side, continuous reserve auctions increase supply, high downstream yarn inventories curb buying enthusiasm, prior bullish factors are fully priced in, and the macro environment is negative, limiting upside.
In the short term, domestic and international cotton prices are likely to fluctuate widely, with directional breakthroughs awaiting substantial supply-demand catalysts. For textile companies, this means neither expecting a single-direction price decline to bring cost benefits nor panic-buying that inflates inventory costs. A rational approach is to purchase in batches based on order cycles and inventory levels while closely monitoring three key variables: Xinjiang harvest weather, US cotton condition ratings, and reserve auction policies.