ICE cotton futures fell 0.79% on July 14, with the December contract settling at 80.87 cents per pound, as the market reacted to China's official announcement of reserve cotton sales starting July 20. Although widely anticipated, the policy triggered profit-taking among longs, especially after last week's rally. The China National Cotton Reserves Corporation will sell a portion of state reserves on each working day, with daily volumes adjusted flexibly based on market conditions.
Background
The reserve release was not a surprise. Industry participants had expected it since early July. However, the confirmation turned speculation into a tangible supply event. StoneX analyst Valentin Olah noted that the market had already priced in the release, but the announcement prompted a pullback after a sharp rally last week. Meanwhile, the USDA's July supply-demand report raised 2026/27 US cotton production by 400,000 bales to 13.7 million bales, adding to bearish sentiment. CBOT soybeans and corn also fell, reflecting broad-based profit-taking across agricultural commodities.
Industry Impact
Not all producing regions share the same supply outlook. Brazil's Conab reported 2025/26 cotton output at 4.0598 million tonnes, down 0.5% year-on-year, with planted area shrinking 3.2%. This partially offsets the US production increase, limiting global supply expansion. A weaker US dollar on July 14 provided support for dollar-denominated cotton, while rising oil prices (up ~2% on renewed US sanctions on Iran) increased production costs for synthetic fibers, indirectly benefiting cotton demand.
For Chinese mills, the reserve release increases short-term supply, potentially narrowing the domestic-international price spread. Exporters should monitor this spread closely: a narrowing spread reduces the appeal of imported cotton, potentially shifting procurement back to domestic reserves.