On September 2, the main cotton futures contract on the Zhengzhou Commodity Exchange broke below the key psychological level of 17,000 yuan per ton, and continued to decline the next day, closing at 16,825 yuan per ton, down 110 yuan per ton in a single day. This pullback is not an isolated event but the result of multiple bearish factors: ICE cotton futures had risen too much earlier, with most positive news already priced in; hawkish remarks from U.S. Federal Reserve officials weighed on the macro environment; and crowded positioning triggered concentrated profit-taking. For textile companies, this may open a window for raw material procurement, but the downside may not be smooth.
Supply-Demand Fundamentals: Loose Expectations vs. Reality Risks
The International Cotton Advisory Committee (ICAC) released its monthly report on September 2, estimating 2026/27 global cotton production at 26.2 million tons, slightly above the consumption forecast of 25.9 million tons, indicating a small surplus. On the surface, ample supply is the core bearish logic. However, the growing season is fraught with uncertainties, and adverse weather or pest outbreaks in major producing areas could shrink the current surplus, providing a buffer against sharp price declines.
Domestically, Xinjiang cotton has entered the peak boll-opening period, with growth ahead of previous years. Defoliant spraying will begin in early September across major production areas, potentially bringing machine-picked cotton to market earlier than usual. This means supply pressure may arrive sooner than expected, seasonally weighing on prices. Weather-wise, southern Xinjiang is dry with little rain, favoring boll opening and drying, while northern Xinjiang has only scattered showers, causing limited disruption. Attention should be paid to precipitation changes to prevent quality and yield fluctuations.
Downstream Transmission: Weak Peak Season, Inventory Clearance Key
As the traditional textile peak season arrives, operating rates at spinning and weaving mills are steadily rising, and cotton yarn shipments have improved slightly week-on-week, indicating marginal demand recovery. However, the recovery is weaker than expected, with high industry inventory and slow destocking of cotton yarn. Meanwhile, regular reserve cotton auctions continue to supplement market supply, leading to dull spot trading and cautious sentiment.
What does this weak recovery imply? For buyers, the price pullback and reserve supply offer greater bargaining room in the short term, but chasing downside is unwise given support from El Niño-driven global production cut expectations and low-to-mid domestic inventories. For spinners, high finished-goods inventories squeeze margins, necessitating destocking over raw material replenishment.
International Variable: US Crop Concerns Intensify
US cotton is entering the boll-opening phase, but growth lags, drought in key regions worsens, and good-to-excellent ratings continue to decline. Forecasts indicate hot and dry conditions will persist this week, potentially exacerbating drought. Market expectations of reduced US production are strengthening, and subsequent ratings and abandonment data will be pivotal for ICE prices. If US production declines materialize, ICE strength could stabilize Zheng cotton; otherwise, both markets may fall in tandem.
Price Outlook and Strategy
In summary, the cotton market is caught in intense long-short battles, with prices under dual pressure. Support comes from El Niño-driven global production cut expectations, low-to-mid domestic inventories, and peak-season demand prospects. Resistance stems from reserve auctions, high downstream inventories curbing purchases, priced-in positives, and a bearish macro environment. Short-term, both domestic and international cotton prices are likely to fluctuate widely, with directional breakthroughs awaiting fundamental drivers.