16,673 yuan per metric ton. That was the average settlement price for Zhengzhou cotton futures this week, down 295 yuan from the prior week, a decline of 1.7%. Behind that number lies a double squeeze: fading expectations of production cuts and resurgent supply pressure. When the market stops paying a premium for weather risk, cotton prices gravitate back toward actual supply-demand fundamentals.
Price Review: Domestic and International Markets Weaken in Tandem
On the domestic side, the new cotton harvest window is approaching, and reserve cotton auctions continue to add supply. Bearish factors on the supply side are accumulating. Meanwhile, downstream textile mills have seen peak-season orders fall short of expectations, offering limited demand-side support. The China Cotton Price Index B averaged 18,060 yuan/mt, down 0.8% week-on-week. The decline was smaller than futures, but the direction was the same.
International markets faced similar pressure. ICE cotton futures settled at an average of 86.97 cents/lb, down 2.31 cents or 2.6% from the previous week. The International Cotton Index (M), reflecting the landed price of imported cotton at Chinese main ports, averaged 96.42 cents/lb, equivalent to 15,879 yuan/mt at a 1% tariff, down 3.4% week-on-week. Domestic cotton now commands a premium of 2,181 yuan/mt over international prices, with the spread widening by 429 yuan from the prior week.
Notably, yarn markets diverged. Domestic C32S carded yarn averaged 23,708 yuan/mt, up 0.3% weekly, while the same specification from major import sources averaged 23,715 yuan/mt, essentially flat. The premium of imported yarn over domestic yarn has narrowed to just 7 yuan/mt, a historic low. This means the price advantage of imported yarn is disappearing, offering a temporary reprieve for domestic spinners. Polyester staple fiber rose 285 yuan to 8,447 yuan/mt, and the substitution effect of chemical fibers over cotton warrants continued monitoring.
Supply-Demand Tug-of-War: How Long Can the Production-Cut Narrative Last?
The USDA's September supply-demand report cut its 2026/27 U.S. cotton production forecast by 89,000 mt to 2.874 million mt, but the reduction did not exceed market expectations. As of September 6, the U.S. cotton good-to-excellent rating fell 5 percentage points week-on-week to 34%, with nearly 60% of producing areas still affected by drought, and the drought footprint expanding further. The production-cut expectation is objectively still strengthening, but the weather premium that was previously over-traded is being gradually corrected, and its marginal driving force has clearly diminished.
Brazil's bumper crop outlook provides a counterweight to the U.S. production cut. As of September 4, the 2025/26 Brazilian cotton harvest was 89.4% complete, 2.5 percentage points ahead of last year. Market forecasts for Brazilian production cluster around 4.02-4.5 million mt. A high-yield season is likely, meaning there is no substantial global supply gap.
Demand shows marginal improvement. For the week ending September 3, U.S. upland cotton net export sales for 2026/27 reached 16,800 mt, up 10,600 mt from the prior week. But a single week's improvement is insufficient to reverse the broader weak demand picture; several consecutive weeks of confirmation would be needed.
Domestically, Xinjiang cotton boll-opening is nearly 50% complete, faster than last year, with scattered purchasing already beginning in some areas. According to field research by the national cotton market monitoring system, no significant production declines were observed in Alar, Bazhou, or Aksu, and overall output is expected to be flat or slightly lower year-on-year. Ginning mills plan to begin purchasing around September 20, with machine-picked cotton opening prices expected at 7.0-7.6 yuan/kg, significantly higher than last year's 6.3-6.4 yuan/kg. Purchasing sentiment is cautious, with concerns that the market could repeat the 2023 pattern of "rise first, fall later."
Downstream, spinning mill operating rates are stable to slightly higher, and new orders have improved marginally but only to a limited extent. Corporate profits remain under pressure, and raw material procurement is mainly just-in-time replenishment. Exports remain stable. Customs data show August textile and apparel exports totaled $28.57 billion, up 7.7% year-on-year, the third consecutive month of 7%-plus growth, providing some support to consumption expectations. Reserve cotton sales entered their eighth week, with the transaction rate failing to reach full subscription for the first time, falling to 99.35%. The average transaction price edged lower, as mills bid rationally based on orders and quality needs. As of September 11, cumulative central reserve cotton transactions exceeded 320,000 mt.
Macro Disturbances: Rate Hike Expectations and Trade Signals Intertwine
The Middle East conflict has further widened, with Houthi forces in Yemen seizing a strategic Red Sea location. Supply concerns pushed Brent crude above $109/barrel, rapidly heating up inflation expectations. U.S. August core CPI rose 0.3% month-on-month, above the 0.2% market expectation and the largest single-month gain in four months. After the data release, market expectations for a September Fed rate hike rose to nearly 90%. Financial conditions tightened, and commodity valuations came under clear pressure.
On China-U.S. trade, the Ministry of Commerce stated on September 10 that the two sides are negotiating a $30 billion reciprocal tariff reduction framework. The market expects the tariff reduction list to likely cover apparel, footwear, home goods, and textiles, providing some support to cotton market sentiment. Domestic inflation is recovering moderately. August CPI rose 0.8% year-on-year, core CPI rebounded to 1.0%, and PPI growth widened to 3.8%. Upstream cost pass-through is strengthening, but terminal consumption recovery remains slow.
The "Financial Powerhouse Construction 15th Five-Year Plan" was officially released, explicitly calling for improving futures market product offerings and enhancing commodity price influence. It also disclosed that consumer loan interest subsidies supported approximately 1.88 trillion yuan of household consumption in the first seven months. If related policies are gradually implemented, they may marginally improve financing conditions, risk management, and terminal consumption expectations for the cotton textile supply chain.