ICE cotton futures for December delivery fell 0.79% to 80.87 cents per pound on July 14, breaking a week-long rally. The decline was triggered by profit-taking after China's reserve cotton sales announcement and a bearish USDA supply revision.
Reserve Sales and Market Sentiment
China National Cotton Reserves Corporation announced that central reserve cotton auctions will begin on July 20, with daily offerings flexible based on market conditions. Although widely anticipated, the formal announcement prompted concentrated long liquidation. A StoneX senior broker noted that funds chose to lock in gains after the previous week's rally. For domestic mills, the timely release of reserve cotton should ease short-term supply tightness and stabilize spot prices.
Supply Fundamentals: US Output Up, Brazil Down Slightly
The USDA July WASDE report raised 2026/27 US cotton production by 400,000 bales to 13.7 million bales, with global supply revised up by 300,000 bales. This expansionist outlook sets a bearish tone for the medium term. Meanwhile, Brazil's Conab estimated 2025/26 output at 4.0598 million tonnes, down 0.5% year-on-year, with planted area shrinking 3.2% to 2.0186 million hectares. While Brazil's slight decline does not alter the global surplus, the acreage contraction signals a potential long-term slowdown in South American expansion if planting margins remain pressured.
External Market Linkages
Commodity markets were mixed. CBOT soybeans fell on improved crop ratings, and corn edged lower, with profit-taking sentiment spilling into cotton. However, crude oil rose about 2% to a one-month high after the US reinstated a naval blockade on Iran, providing limited support to cotton. The US dollar index fell, theoretically bullish for dollar-denominated cotton, but failed to reverse the futures decline, confirming that supply-demand fundamentals and policy factors dominate.
Implications for the Supply Chain
ICE cotton inventories dropped to 121,285 bales, while the Cotlook A index held steady at 90.70 cents per pound, indicating spot prices have yet to follow futures lower. However, the futures weakness will gradually feed into import costs, potentially opening a buying window for spinners reliant on foreign cotton. Domestically, Zhengzhou cotton futures are expected to come under pressure after reserve sales begin, narrowing the domestic-import spread—a positive for mills using import quotas.