ICE cotton futures for the most-active December contract settled at 80.87 cents per pound on July 14, down 0.79%. The drop was triggered by China National Cotton Reserves Corporation's announcement to start selling reserve cotton from July 20 on each business day. Although the market had widely anticipated the release, the official statement prompted profit-taking after last week's rally.
Background
China's reserve cotton sales are a routine measure to regulate domestic raw material supply. The announcement specifies sales from July 20 onward, with daily volumes determined by market conditions. A StoneX senior broker noted that while the release was expected, capital chose to lock in gains. National Bureau of Statistics data shows persistent demand gaps for cotton textile mills, and the sales aim to ease supply tightness and stabilize prices.
The USDA July report raised 2026/27 US cotton production estimate by 400,000 bales to 13.7 million bales, with global supply also revised up by 300,000 bales. This signals a looser global supply balance for the new season. Brazil's Conab reported 2025/26 cotton output forecast at 4.0598 million tons, down 0.5% YoY, with planted area at 2.0186 million hectares, down 3.2% YoY. The limited Brazilian decline does not offset the global supply surplus.
Industry Impact
Reserve cotton sales affect the chain in multiple ways. For mills, they provide additional sourcing channels and help lower costs. However, the timing, ahead of new crop arrival, may cap new-crop price gains. For traders, spot market pressure increases and inventory destocking may slow. For ginners, larger reserve sales could compress new-crop margins.
ICE cotton stocks fell to 121,285 bales as of July 13, down 5,842 bales from the prior day, indicating stable delivery demand. The US dollar index weakened, providing some support for dollar-denominated cotton, but not enough to offset demand concerns. CBOT soybean and corn futures also fell, reflecting broad bearish sentiment in agricultural markets.