2,100 yuan per tonne — that is the latest reading of the domestic-international cotton price spread at the end of September, nearly 500 yuan wider than a month earlier. A widening spread is not news in itself. But when it appears alongside the concentrated arrival of the Northern Hemisphere harvest, a peak season that is warming but not booming, and a mixed macroeconomic backdrop, the entire supply chain should reconsider its procurement and hedging rhythm for the fourth quarter.
Three Transmission Channels Behind the Decline
ICE cotton futures led the fall. The benchmark contract settled at 78.86 US cents per pound at the end of September, down 15.3% from a month earlier. The International Cotton M Index, reflecting landed prices at Chinese main ports, stood at 92.39 cents per pound, equivalent to an import cost of 15,215 yuan per tonne (1% tariff, excluding port charges), a drop of 8.4%. On the domestic side, the Zhengzhou cotton futures benchmark settled at 15,840 yuan per tonne, down 7.2%, while the China Cotton Price B Index, representing standard grade lint in the interior, fell 4.9% to 17,315 yuan per tonne.
Three channels drove the move. The Federal Reserve restarted rate hikes and signaled further tightening within the year, pressuring commodity valuations. Expectations of reduced output in the US and Xinjiang were gradually revised, shifting the supply narrative from tight to looser. And traditional peak-season orders in China failed to show meaningful volume growth, leaving demand unable to sustain higher prices. For buyers, imported cotton is now cheaper than domestic spot on a landed basis, making quota allocation timing more important than the price level itself.
Supply and Demand: The Gap Remains, but the Margin Is Loosening
The USDA's September forecast put global cotton production for 2026/27 at 25.54 million tonnes, down 3.8% year on year, and consumption at 26.76 million tonnes, up 1.5%. The supply-demand gap of 1.22 million tonnes is 1.4 million tonnes wider than a year earlier, with the stock-to-use ratio falling to 57%, a historically low level. The gap suggests limited room for a deep price decline, but marginal supply is recovering.
US boll-opening and harvest rates led the five-year average by 3 and 2 percentage points respectively. Brazil's harvest has fully ended, with production revised up to 4.144 million tonnes, up 1.5% year on year, and August exports reaching 106,000 tonnes, up 37.3%. Australian exports in July fell 28.4% year on year to 127,000 tonnes. US new-crop commitments exceeded last year but remained well below the five-year average. Divergent export paces suggest international buyers are waiting or shifting toward Brazilian supplies during the price downturn.
Domestically, 409,000 tonnes of reserve cotton were offered through September 29, with a 99.25% transaction rate at an average price of 17,191 yuan per tonne, equivalent to 17,851 yuan per tonne for grade 3128B. Commercial inventory stood at 1.8097 million tonnes in mid-September, 634,000 tonnes higher than a year earlier. Reserve sales have effectively supplemented mills' rigid demand, but supply pressure will rise markedly once the new crop arrives.
Industry Signals: Xinjiang Opening Prices and Yarn Output
Machine-picked cotton in Xinjiang is being harvested about a week earlier than last year, with opening prices concentrated at 7.0-7.3 yuan per kilogram, slightly above the ten-year average of 6.9 yuan. That translates to ginning costs of 16,000-17,000 yuan per tonne for lint, at the upper end of the normal range. Ginners are noticeably more cautious than in previous years; some large firms have scaled back purchasing and processing, while most prefer to hedge in the futures market while buying, avoiding outright long exposure.
Production expectations are also being revised. The September crop survey by the China Cotton Market Monitoring System projects 2026 national output at 7.46 million tonnes, down 290,000 tonnes year on year but still a historically high-yield year. Earlier concerns about reduced planting area and heat damage in Xinjiang are fading as harvesting progresses.
Downstream data show resilience but no breakout. From January to August, national yarn output reached 14.339 million tonnes, up 0.7% year on year, while Xinjiang yarn output rose 17.8% to 2.57 million tonnes, confirming capacity continues to concentrate in the region. Textile and apparel domestic sales totaled 961.49 billion yuan, up 5.1%, and exports reached 203.31 billion US dollars, up 3.1%. In early September, mill operating rates were 81.9% and yarn sales-to-output ratios 96.7%, both up for a second consecutive month but 1.5 and 0.5 percentage points below year-earlier levels, and 4.9 and 3.4 points below the first-half average. The peak season is warming, but its quality is weaker than in previous years.
Macro Variables: Structural Positives Outweigh Aggregate Ones
The meeting between Chinese and US leaders in late September produced an eight-point consensus, stabilizing bilateral relations in the short term. Tariff relief has been extended to January, benefiting autumn-winter export conditions. China's tariff reduction list includes US cotton, theoretically lowering import costs, though quota limits and high bonded inventory mean actual gains remain to be seen. The US reduction list covers only some non-cotton home textiles, leaving cotton apparel untouched, so the benefit is less than hoped.
Overall, the positives for the cotton textile market are structural rather than aggregate. Fed rate expectations and Middle East tensions could still trigger periodic volatility, making a range-bound international market the most likely scenario. Domestically, supply pressure will increase once the new crop arrives, while seasonal demand recovery remains modest, suggesting prices will trade weakly around new-crop costs.