On July 14, the ICE December cotton contract settled at 80.87 cents per pound, down 0.64 cents. The market failed to sustain gains despite improving macro sentiment, retreating under the dual pressure of weakening demand expectations and policy-driven supply increases. This decline is not an isolated event but a typical correction in the global cotton supply-demand rebalancing process.
Background: Reserve Release and Supply-Demand Data Coincide
China National Cotton Reserves Corporation announced on July 14 that it will start selling some central reserve cotton from July 20, with daily listings on each national working day. Although this news had been partially priced in, the official confirmation triggered profit-taking by long positions. A senior broker at StoneX noted that funds chose to cash out after last week's sharp rally.
Meanwhile, the USDA raised its 2026/27 US cotton production estimate by 400,000 bales to 13.7 million bales in its July WASDE report, while the global cotton supply estimate was also raised by 300,000 bales. This implies a higher global stocks-to-use ratio for the new season, weighing on forward prices.
In Brazil, Conab data shows 2025/26 cotton output at 4.0598 million tons, down 0.5% year-on-year, with acreage shrinking 3.2% to 2.0186 million hectares. Higher yields partially offset the acreage reduction, keeping Brazil's overall supply elevated.
Industry Impact: Price Transmission and Downstream Procurement Rhythm
The direct effect of the reserve release is to increase raw material options for domestic spinners. Reserve cotton is often competitive in quality and price, effectively alleviating the shortage of high-grade cotton. However, this also means short-term demand for imported cotton may be substituted, weakening support for ICE futures.
From a global perspective, higher US production estimates combined with strong Brazilian output expectations mean the new season supply side is not tight. End-use consumption, especially textile and apparel exports, still faces challenges from overseas destocking and slow order recovery. The gap between weak demand reality and strong supply expectations is the core contradiction driving current cotton price pressure.
Notably, ICE cotton futures stocks have been declining, falling to 121,285 bales as of July 13, down 5,842 bales from the previous day. While falling stocks usually indicate tightening spot liquidity, this signal's price-boosting effect is muted under the reserve release expectation.