On July 20, China National Cotton Reserves Corporation will begin selling central reserve cotton on each national working day, with daily volumes adjusted based on market conditions. This announcement directly pressured ICE cotton futures: on July 14, the most-active December contract fell 0.64 cents, or 0.79%, settling at 80.87 cents per pound. Although the market had anticipated the release, the official announcement still triggered profit-taking by some funds.
Background
The USDA July supply-demand report added another layer of pressure. The 2026/27 US cotton production estimate was raised by 400,000 bales to 13.7 million bales, with global supply also revised up by 300,000 bales. This signals a more ample global supply for the new season, especially with no significant weather anomalies in major US growing regions. A StoneX senior broker noted that the market weakness is primarily a reaction to China's reserve sale announcement, but the deeper driver is weakening demand prospects—CBOT soybean and corn futures also fell, reflecting a broad profit-taking sentiment in the agricultural commodity complex.
Brazil's National Supply Company reported that 2025/26 cotton production is estimated at 4.0598 million tons, down 0.5% year-on-year, while planted area is estimated at 2.0186 million hectares, down 3.2%. The area reduction but yield improvement means production remains high, resonating with US output increases to push global stocks-to-use ratios higher.
Industry Impact
For domestic mills, the reserve sales directly ease raw material tightness. Previously, limited import quotas and firm domestic prices pressured small and medium spinners. With reserve sales starting, spot market supply will increase, curbing rapid price rises, but the actual daily volume remains unknown. Historically, the domestic-import spread often narrows during such sales, potentially reducing import cotton competitiveness temporarily.
Currency and oil markets also influence cotton indirectly. The US dollar index fell on July 14, providing some support to dollar-denominated cotton futures. However, oil prices rose about 2% to a one-month high as the US reinstated a naval blockade on Iran, raising Middle East supply risks. Higher oil prices will push up synthetic fiber costs, indirectly benefiting cotton demand, though short-term effects are limited. ICE deliverable stocks fell to 121,285 bales, indicating weak delivery willingness and lack of bullish conviction.