ICE cotton futures for December delivery settled at 80.87 cents per pound on July 14, down 0.64 cents or 0.79%. The decline was triggered by China's announcement on the same day that it would begin selling reserve cotton starting July 20 on each national business day. Although the market had largely anticipated this policy, the official release prompted concentrated profit-taking from long positions built during the previous rally, leading to a rapid price pullback.
Background: The Logic Behind Reserve Cotton Sales
China's reserve cotton auctions have historically been a key policy variable affecting both domestic and international cotton prices. The timing of this release—late July—falls in the transition period from the traditional off-season to the peak season for textiles. Chinese mills have been grappling with high raw material costs and squeezed profit margins from weak orders since Q2, creating a structural gap in cotton demand. The reserve cotton, offered at below-market floor prices, aims to directly reduce mill input costs and ease cash flow pressures.
According to a StoneX broker, although the release was partially priced in, the formal announcement still triggered a technical correction. This reflects fragile market sentiment: the USDA's July supply-demand report had already raised the US 2026/27 production estimate to 13.7 million bales and revised global supply up by 300,000 bales, sending a bearish signal that had dampened bullish confidence.
Industry Impact: Supply Divergence and Demand Concerns
From a global supply perspective, major Northern Hemisphere producers show a divergence: US output is increasing while Brazil's is slightly declining. The USDA raised its US 2026/27 crop forecast by 400,000 bales to 13.7 million bales, driven by stable acreage and improved yield expectations. Meanwhile, Brazil's Conab reported that the 2025/26 crop is estimated at 4.0598 million tons, down 0.5% year-on-year, with planted area shrinking 3.2% to 2.0186 million hectares. The Brazilian decline is modest and has limited impact on global totals, but the acreage contraction signals a potential shift in South America's competitive position in global trade if it continues.
On the demand side, pressure is more direct. The reserve release will increase domestic short-term supply, leading overseas buyers to worry about a potential slowdown in Chinese import demand. Additionally, CBOT soybean and corn futures also fell, reflecting broad profit-taking in the agricultural commodity complex and a generally bearish sentiment. ICE cotton deliverable stocks decreased from 127,127 bales to 121,285 bales, but this inventory reduction failed to support prices, indicating thin spot market activity and weak downstream buying appetite.