China's cotton market is undergoing a subtle price revaluation. The floor price for the 8th week (Sept 7-11) of central reserve cotton sales has been set at 17,303 yuan per ton (equivalent to grade 3128B), continuing a downward trend since the 2026 sales program began on July 20. For textile mills, this signals easing raw material costs, but it also squeezes cotton farmers' margins—the market is redistributing profits across the supply chain.
Background
The floor price is anchored to the spot benchmark of grade 3128B. Actual daily prices for specific batches are calculated based on cotton inspection results and the quality differential table published by the China Cotton Association. This means batches with different quality levels may trade above or below the 17,303 yuan benchmark. Such a refined pricing mechanism gives buyers room to negotiate based on quality but requires mills to thoroughly assess batch quality before bidding.
As the 2026 reserve sales enter their eighth week, cumulative supply continues to expand. The gradual decline in the floor price reveals policy intentions to guide stable cotton prices—preventing excessive rises that would inflate downstream costs while avoiding a collapse that would hurt farmers. This "ceiling and floor" approach is especially evident in the late marketing year.
The price decline comes amid expectations of a larger global cotton harvest and sluggish textile order recovery domestically. Weak international prices transmit through import parity, while reserve cotton serves as a key regulator. Adjustments to the floor price reflect a comprehensive assessment of domestic-international spreads and supply-demand balances. Mills focusing only on absolute prices may miss dynamic changes in the quality differential table, leading to suboptimal bidding strategies.
Industry Impact
Small and medium-sized textile enterprises benefit most from the lower floor price. Lacking long-term contract locking, these mills rely heavily on spot and reserve cotton. A drop of several hundred yuan per ton directly improves gross margins. At 17,303 yuan, the price is notably lower than the same period in 2025, effectively granting policy dividends to mills.
However, the downward price signal is not a one-way benefit. Upstream cotton farmers and ginners face squeezed incomes, especially in Xinjiang where planting costs remain rigid while selling prices weaken. This could reduce planting intentions for the next season, potentially tightening future supply and triggering a rebound in cotton prices. The current "low-price dividend" may not persist.
For traders and intermediaries, the lower floor price compresses arbitrage opportunities between reserve cotton and futures. The previous risk-free spread trading model is no longer viable when the floor price approaches market levels, forcing a shift toward basis trading or option-embedded strategies. This change is reshaping profit logic in the cotton circulation chain and testing firms' risk management capabilities.
On the demand side, textile and apparel exports still face overseas inventory destocking, while domestic demand shows a "prosperous season without prosperity." Lower raw material costs can reduce yarn costs, but if orders remain insufficient, yarn prices cannot rise, and cost benefits will be shared with downstream clients. Mills must guard against finished goods inventory buildup—avoiding the trap of cheap raw materials but unsold products.