The spread between domestic and international cotton prices widened from 1,601 yuan/ton to 2,100 yuan/ton in a single month. That number matters more than the price decline itself. A widening spread means imported cotton is accumulating a comparative advantage, and once quota policy loosens, domestic prices will face direct external supply pressure. ICE cotton futures settled at 78.86 cents/lb in September, down 15.3% month-on-month, while Zhengzhou cotton closed at 15,840 yuan/ton, down 7.2%. The overseas market fell much harder, which is precisely what drove the spread wider.
Triple Pressure Reshapes Pricing
The macro headwind came from the Federal Reserve. After restarting rate hikes for the first time in three years, expectations for another increase within the year intensified. Long-end U.S. Treasury yields climbed steadily, global liquidity tightened, and the dollar strengthened, pressuring commodities broadly. Cotton, with its strong financial attributes, bore the brunt.
Supply-side expectation revisions proved equally critical. Earlier concerns about Xinjiang heat damage and reduced planting area were gradually disproven as harvesting advanced. The national cotton market monitoring system's September survey projects China's 2026 cotton output at 7.46 million tons, down only 290,000 tons year-on-year, still a historically high-yield year. U.S. cotton boll-opening and harvest rates led five-year averages by 3 and 2 percentage points respectively. Brazil's harvest has fully ended, with production revised up to 4.144 million tons. All three major northern hemisphere producers are ramping up simultaneously, turning supply pressure from expectation into reality.
Demand signals are more nuanced. From January to August, national yarn output reached 14.339 million tons, up merely 0.7% year-on-year, while Xinjiang yarn output hit 2.570 million tons, surging 17.8%. Capacity continues concentrating in Xinjiang, but sluggish national growth suggests inland mills are being squeezed out. In early September, mill operating rates stood at 81.9% and yarn sales-to-production ratios at 96.7%. Though both rose for a second consecutive month, they fell 1.5 and 0.5 percentage points below year-earlier levels, and 4.9 and 3.4 points below first-half averages. The peak season is warming up, but its quality is clearly lacking.
How Industrial Clusters Are Reacting
Xinjiang machine-picked cotton opening prices cluster around 7.0-7.3 yuan/kg, slightly above the decade average of 6.9 yuan/kg. Converted to lint processing costs, that translates to 16,000-17,000 yuan/ton, in the upper range of normal fluctuation. This cost line defines the floor for Zhengzhou cotton.
Ginning mills' behavioral shift deserves attention. Facing elevated procurement costs and an uncertain outlook, some large enterprises have scaled back purchasing and processing operations. Most choose to hedge in futures while purchasing, avoiding one-sided spot exposure. This cautious posture means physical circulation may be slow initially after new cotton arrives, which could paradoxically provide some short-term price support.
Reserve cotton sales stopped on September 30, with cumulative listings of 409,000 tons, a 99.25% transaction rate, and an average price of 17,191 yuan/ton. With reserves exiting, market supply will depend entirely on new crop and imports. The smoothness of the old-to-new crop transition will directly affect October price volatility. Commercial inventory reached 1.8097 million tons by mid-September, 634,000 tons higher than a year earlier, ensuring adequate supply before new cotton arrives and weakening the case for short-term stockpiling.
China-U.S. trade relations showed signs of temporary stabilization. Tariff relief was extended to January, benefiting autumn-winter export orders. China's tariff reduction list includes U.S. cotton, theoretically lowering import costs, though quota constraints and high bonded inventory limit actual gains. The U.S. reduction list covers only some non-cotton home textiles, excluding cotton textile and apparel products, falling short of expectations. Overall, policy benefits are structural, and their price impact needs discounting.
Outlook and Operational Rhythm
Domestic cotton prices will likely trade weakly around new-crop costs of 16,000-17,000 yuan/ton, with limited downside but equally insufficient upward momentum. International prices face Fed rate expectations and Middle East instability, making range-bound trading the most probable scenario. For buyers, the current spread makes imported cotton's comparative advantage worth watching, though quotas and logistics cycles are real constraints.