On September 2, the main contract of Zhengzhou cotton futures broke below the key threshold of 17,000 yuan per ton, and continued to weaken the next day, closing at 16,825 yuan per ton, a single-day drop of 110 yuan. This price level not only pierced the market's psychological support but also signaled a temporary end to the rally driven by earlier external bullish factors. For the textile industry chain, the downward shift in cotton prices means a phased easing of raw material cost pressures, but high volatility also complicates procurement decisions.
Background
This pullback was not caused by a single factor but was the result of multiple bearish forces converging. External ICE cotton futures had risen significantly earlier, with most bullish expectations already priced in. Meanwhile, hawkish remarks by major overseas central bank officials brought macro tightening pressures. Combined with crowded long positions and an unbalanced trading structure, a small bearish trigger led to concentrated profit-taking, accelerating the price decline. This technical correction, coupled with macro headwinds, leaves little upward momentum in the short term.
From a fundamental perspective, the International Cotton Advisory Committee (ICAC) released its monthly report on September 2, raising its global cotton production estimate for 2026/27 to 26.2 million tons, above the consumption forecast of 25.9 million tons, indicating a slight supply surplus for the new season. However, the growing season is fraught with uncertainties, and risks such as adverse weather and pest outbreaks in major producing areas are likely to shrink the projected surplus, providing a floor under prices. In other words, the easing expectation is not set in stone, and weather premium may return at any time.
Industry Impact
The downstream textile market is in its traditional peak season, but the recovery is clearly weaker than expected. Recently, operating rates at domestic yarn and fabric mills have risen steadily, and cotton yarn shipments have improved slightly week-on-week, showing marginal demand recovery. However, overall inventory pressure remains high, and the destocking process of cotton yarn is slow, making the peak season less impressive. Regular reserve cotton auctions continue to supplement market supply, and with both supply and demand factors offsetting each other, spot cotton trading remains subdued, with cautious bullish sentiment.
Regarding the new cotton harvest, Xinjiang cotton has entered the key boll-opening period, with growth progress generally ahead of the same period last year. Based on current growth, defoliant spraying will begin in major producing areas in early September, and machine-picked cotton may hit the market earlier than usual. Weather conditions are generally favorable—southern Xinjiang is dry with little rain, suitable for boll opening and drying, while northern Xinjiang saw only sporadic precipitation early in the week, causing minimal disruption. However, future rainfall changes need close monitoring to prevent potential impacts on cotton quality and yield.
Internationally, the US cotton growth situation is bearish. US cotton is gradually entering the boll-opening stage, but overall growth lags behind schedule, with worsening drought in major producing areas and declining cotton condition ratings. Weather forecasts indicate high temperatures and little rain in US cotton regions this week, which may exacerbate drought conditions. Expectations of reduced US cotton production are rising, and future condition ratings and abandonment rates will be key indicators affecting external cotton prices.
In summary, the current cotton market is characterized by intense long-short contention and a typical pattern of pressure from both sides. On the support side, El Niño climate disturbances are fueling expectations of reduced global production, along with domestic cotton inventories at mid-to-low levels and traditional peak-season demand expectations, providing a solid bottom for prices. On the suppression side, continuous reserve cotton releases, high downstream yarn inventories curbing purchasing enthusiasm, fully priced-in previous bullish factors, and a bearish macro atmosphere all significantly limit upside potential. In the short term, domestic and foreign cotton prices are likely to remain range-bound with wide fluctuations, and directional breakthroughs will require new fundamental drivers.