2,100 yuan per ton — that is the year-high spread between domestic and imported cotton at the end of September, up sharply from 1,601 yuan at the end of August. The widening spread means imported cotton is becoming more cost-competitive, but quota constraints and elevated bonded stocks limit how much of that advantage can actually be captured. For mills, this is not simply a question of buying cheaper — it is a strategic choice about locking in costs before the new crop arrives.
Three Forces Pushing Prices Down
Cotton prices fell steadily through September, pressured by both macro and industry factors. The Federal Reserve restarted rate hikes after a three-year pause, with markets expecting further tightening within the year, weighing on commodities broadly. Harvest progress in the northern hemisphere proceeded smoothly, gradually correcting earlier expectations of reduced US and Xinjiang output. Meanwhile, China's traditional textile peak season delivered lackluster orders.
In specific terms, the ICE cotton futures main contract settled at 78.86 cents/lb on September 29, down 15.3% from end-August. The International Cotton M Index stood at 92.39 cents/lb, equivalent to an import cost of 15,215 yuan/ton under the 1% tariff, a decline of 8.4%. On the domestic side, the Zhengzhou cotton futures main contract settled at 15,840 yuan/ton, down 7.2%, while the national cotton price B index reached 17,315 yuan/ton, down 4.9%. International prices fell much more sharply than domestic ones, directly widening the spread.
Two marginal changes emerged late in the month: positive signals from the China-US summit and the announcement that state reserve cotton sales would stop. These slowed the decline but did not reverse it.
New Crop Costs and Supply Rhythm
Xinjiang machine-picked cotton is being harvested about a week earlier than last year. Opening prices cluster around 7.0-7.3 yuan/kg, slightly above the ten-year average of 6.9 yuan/kg. Converted to lint processing costs, this implies 16,000-17,000 yuan/ton, at the upper end of the normal range. This means new crop costs provide some support for current futures prices, limiting downside.
Ginning mills' behavior deserves attention. Facing relatively high purchase prices and an uncertain outlook, mills have become noticeably more cautious. Some large enterprises have scaled back ginning operations, while most plan to hedge in the futures market while purchasing, avoiding outright long positions. This collective risk aversion will dampen price volatility during the early procurement period.
Production expectations are also being revised. Earlier concerns about reduced Xinjiang acreage and heat-related crop losses have eased as harvest approaches. The September crop survey by the national cotton market monitoring system projects 2026 national output at 7.46 million tons, down 290,000 tons year-on-year but still a historically high level. After the National Day holiday, concentrated new crop arrivals will significantly increase supply pressure.
Globally, the USDA's September forecast puts 2026/27 global production at 25.54 million tons, down 3.8% year-on-year, with consumption at 26.76 million tons, up 1.5%. The production-consumption gap of 1.22 million tons and a stocks-to-use ratio falling to 57% — a historically low level — provide a floor for international prices. But short-term harvest pressure caps upside.
The Real Temperature of Demand
The seasonal uptick in textile activity is real but underwhelming. From January to August, national yarn output reached 14.339 million tons, up just 0.7% year-on-year. Xinjiang yarn output hit 2.570 million tons, up 17.8%, reflecting continued capacity release. Textile and apparel domestic sales totaled 961.49 billion yuan, up 5.1%, while exports reached $203.31 billion, up 3.1%. Domestic demand and exports remain resilient, but growth is moderate.
Key indicators diverged in September. Mill operating rates and yarn sales ratios stood at 81.9% and 96.7% respectively. While both marked a second consecutive monthly recovery, they were down 1.5 and 0.5 percentage points year-on-year, and down 4.9 and 3.4 percentage points from first-half averages. This means autumn/winter order placement is weaker than in previous years, with a clear pattern of a peak season that fails to peak. For buyers, the lack of demand-side momentum means limited upside for yarn prices, allowing for a more measured restocking pace.
On reserve cotton, cumulative sales reached 409,000 tons by September 29, with a 99.25% transaction rate and an average price of 17,191 yuan/ton. Reserve sales effectively supplemented market supply, met mills' rigid cotton needs, and provided a buffer for the transition between crop years. Commercial inventories stood at 1.8097 million tons in mid-September, up 634,000 tons year-on-year, ensuring adequate supply before new crop arrivals.
Structural Impact of Policy Variables
The stabilization of China-US trade relations was a key marginal change in late September. Tariff relief was extended to January next year, benefiting autumn/winter export conditions. China's tariff reduction list includes US cotton, which will lower import costs and enhance US cotton competitiveness. However, the US reduction list covers only some non-cotton home textiles, excluding cotton textile and apparel products, falling short of expectations. Overall, policy benefits are structural, with actual incremental gains yet to be verified. Full details and implementation timing warrant close attention.
In summary, domestic cotton prices are likely to trade weakly around new crop cost levels, with limited downside. International prices will likely range-trade amid Fed rate expectations and Middle East uncertainty. The spread is unlikely to narrow significantly in the short term, but quota constraints keep the actual impact of imported cotton manageable.