The global cotton market is at a delicate inflection point. Data from Chinese customs and futures exchanges show domestic cotton prices have strengthened for two consecutive weeks, while international prices remain in a narrow range due to macro headwinds and divergent weather conditions. This widening price gap is not merely market sentiment but a result of tightening fundamentals intertwined with weather risks.
Tightening Supply-Demand Dynamics
Over the past week, the average settlement price of Zhengzhou Cotton Futures' main contract reached 16,099 yuan per ton, up 230 yuan from the previous week, a gain of 1.4%. The China National Cotton Price B Index, representing domestic spot prices, also rose to 17,643 yuan per ton, up 0.9% week-on-week. The core drivers behind the domestic price increase are twofold: persistent expectations of production cuts in Xinjiang and accelerating destocking of commercial inventories.
In contrast, the New York Cotton Futures main contract averaged 77.05 US cents per pound, down 0.50 cents from the previous week. The imported cotton index (M), converted to yuan at China's main ports, stood at about 14,115 yuan per ton, creating a spread of over 3,500 yuan compared to domestic prices. This spread makes imported cotton more cost-effective for textile mills but also reflects the market's cautious stance on Chinese demand.
Notably, downstream cotton yarn prices have not followed the upward trend. Domestic C32S combed yarn averaged only 23,264 yuan per ton, down 10 yuan from the prior week. Imported C32S yarn averaged 22,861 yuan, 403 yuan cheaper than domestic yarn. The weakness in yarn prices suggests that end-user demand has not yet effectively transmitted upstream, and weaving margins are being squeezed by rising raw material costs.
Weather: The Core Variable for Yield
Weather conditions across major cotton-producing countries are diverging, representing the most unpredictable factor in current price dynamics.
In the United States, the latest USDA acreage report shows 2026 planted area at 9.85 million acres, up 6% year-on-year, with squaring and boll-setting progress ahead of last year. India faces a different scenario: the meteorological department forecasts below-normal monsoon rainfall in July, and Reuters reports a 35% year-on-year decline in Indian cotton planting area. Brazil's new crop harvest is progressing smoothly, with exports in the first 14 working days of June reaching 146,800 tons, 10.6% higher than the same period in 2025.
The situation in China's Xinjiang region is most critical. Cotton across Xinjiang has generally entered the early flowering stage, with some areas in southern Xinjiang already experiencing periodic high temperatures, increasing evapotranspiration and field management difficulty. While irrigation and fine management have prevented widespread damage, the Central Meteorological Observatory forecasts sustained high temperatures of 37-43°C in northwest and north China through early July. As cotton enters the peak flowering and boll-setting period, the duration of heat stress and water supply capacity will be the core variables determining final yields.
Policy and Macro Environment
On the macro front, data from major Southeast Asian textile exporters is concerning. In May, Bangladesh's textile and apparel exports fell to just $440 million, down about 90% both month-on-month and year-on-year. Cambodia's exports were $180 million, also down nearly 90%. Vietnam's April exports reached $3.72 billion, down 9% month-on-month and 4% year-on-year. Behind these numbers are two new EU policies: a fixed tariff on cross-border small parcels under 150 euros starting July 1, and the Ecodesign for Sustainable Products Regulation effective July 19, which bans the destruction of unsold clothing. These policies will create headwinds for global textile and apparel consumption.
China's domestic macro environment is relatively favorable. The June manufacturing PMI rose to 50.3%, returning to expansion territory, and industrial enterprise profits grew 18.8% year-on-year. On the trade front, according to the China Council for the Promotion of International Trade, textile, apparel, and leather goods sectors rank among the top three for overseas exhibition participation, indicating strong foreign trade vitality.