ICE cotton futures for December delivery fell 0.64 cents to settle at 80.87 cents per pound on July 14, down 0.79%, as the market reacted to China's reserve cotton auction announcement and weakening demand prospects. Profit-taking followed last week's rally, signaling caution ahead of a key policy event.
Reserve Auction: Expected Move, Clear Supply Impact
China National Cotton Reserves Corp. announced it will sell part of its central reserve cotton starting July 20, on each national business day, with daily volumes to be determined by market conditions. While widely anticipated, the formal announcement triggered immediate selling pressure. A StoneX broker noted that the market had largely priced in the auction, leading to profit-taking. For domestic spinners, the auction provides access to lower-cost raw materials in the short term, potentially easing cost pressures but also dampening spot market buying interest.
Global Supply: US Production Up, Brazil Area Down
The USDA July report raised 2026/27 US cotton production estimates by 400,000 bales to 13.7 million bales, with global supply also revised up by 300,000 bales. This confirms a higher output outlook, pressuring deferred contracts. Meanwhile, Conab data showed Brazil's 2025/26 cotton production at 4.0598 million tonnes, down 0.5% year-on-year, with planted area falling 3.2% to 2.0186 million hectares. The area reduction in Brazil partially offsets the US increase, but overall global supply remains tilted towards surplus.
Demand: Near-Term Weakness, Medium-Term Concerns
Beyond the reserve auction, fears of short-term demand softness weighed on prices. The US dollar index fell, while US stocks rose on strong bank earnings and lower-than-expected inflation. However, crude oil climbed to a one-month high on renewed US naval blockade of Iran, potentially raising energy costs for textile mills. Downstream, Chinese cotton mills face a traditional summer lull, with limited new orders, and the reserve auction further reduces spot market purchases. The USDA report did not significantly increase demand estimates, suggesting sluggish global consumption.
Related Markets: Weak Grains Add to Bearish Sentiment
CBOT soybeans fell on improved crop ratings and easing weather threats, with corn also edging lower. Weakness in grains spilled over into cotton, as speculative funds reduced positions amid multiple bearish signals. ICE deliverable stocks stood at 121,285 bales as of July 13, down 5,842 bales from the previous day, indicating slightly eased delivery pressure but still elevated levels.
Outlook: Range-Bound Trading Likely During Auction Period
The next 2-3 weeks will be critical as daily auction volumes and prices directly influence spot market dynamics. Active bidding with high prices could support futures, while lackluster demand would further depress sentiment. In the medium term, the tug-of-war between higher US production and reduced Brazilian area, combined with uncertain global textile demand recovery, will likely keep prices oscillating around 80 cents/lb.