After breaking the key 17,000 yuan per ton level, Zhengzhou cotton futures did not stop falling. On September 3, the main contract closed at 16,825 yuan, down another 110 yuan. This price level has retreated significantly from earlier highs, shifting market sentiment from excitement to caution. For textile enterprises, a lower cotton price center should ease raw material costs, yet actual downstream purchases have not expanded, indicating that the game between supply and demand has entered a new phase.
Supply-Demand: Ease vs Weather Risks
The International Cotton Advisory Committee (ICAC), in its monthly report released on September 2, forecast global cotton production at 26.2 million tons for 2026/27, slightly above the consumption estimate of 25.9 million tons, pointing to a modestly loose supply-demand balance. This data set a bearish tone and underpinned the price correction.
However, the loose expectation is not set in stone. The growing season remains volatile; any weather anomaly or pest outbreak in major producing areas could shrink the projected surplus. This means the downside is not unlimited, as weather premiums may re-enter the market and provide a floor under prices.
Industry Transmission: Weak Recovery and Earlier Harvest
The traditional textile peak season has arrived, but this year's "golden September" looks lackluster. Domestic yarn and fabric mills have raised operating rates, and yarn shipments improved slightly week-on-week, indicating marginal demand recovery. Yet the pace is weaker than in previous years, with high inventory pressure and slow destocking of yarn products curbing enthusiasm for raw material purchases.
On the supply side, regular reserve cotton auctions continue to supplement market circulation, offsetting weak demand and keeping spot trading subdued. Meanwhile, Xinjiang cotton has entered the boll-opening period, with growth ahead of schedule. Defoliant spraying will begin in early September across major producing areas, potentially bringing machine-picked cotton to market earlier than usual. This means supply pressure will arrive sooner, seasonally weighing on futures.
International Variables: Rising US Crop-Cut Expectations
Overseas, the US cotton situation looks bearish. The crop is entering boll-opening but lags in growth, with worsening drought in key regions and declining good-to-excellent ratings. Forecasts call for continued hot and dry weather, potentially exacerbating drought conditions. Market expectations for a US production cut are strengthening, making quality ratings and abandonment rates key indicators for ICE prices.
Notably, earlier sharp gains in ICE cotton had already priced in most of the production-cut expectations, leaving little new upside. Combined with hawkish signals from US Federal Reserve officials, crowded long positions triggered profit-taking on minor negative news, accelerating the pullback. This interconnected decline reflects fragile sentiment and sensitivity to macro and capital flows.
Outlook and Strategic Implications
Overall, the cotton market is caught in intense bull-bear tug-of-war, with prices facing pressure both ways. On the support side, El Niño-related weather disruptions boost global production-cut expectations, domestic inventories remain at mid-low levels, and peak-season demand provides a floor. On the suppression side, reserve sales keep supply ample, downstream high inventories curb purchases, and earlier bullish factors are fully priced in, while the macro environment is bearish, limiting upside.
In the short term, cotton prices are likely to fluctuate widely, with directional breakthroughs awaiting fresh supply-demand drivers. For industry players, this price range is neither the start of a downtrend nor an uptrend; volatility management matters more than direction.