ICE cotton futures for December delivery settled at 80.87 cents per pound on July 14, down 0.64 cents or 0.79%, as profit-taking emerged after China announced the launch of reserve cotton sales starting July 20. The China National Cotton Reserves Corporation said it would sell part of its central reserve cotton on each national working day. Although the market had largely anticipated this move, the official announcement prompted long-position holders to cash in gains from last week's rally, creating technical selling pressure.
Supply Fundamentals: Structural Pressure from Increased Output
The USDA raised its 2026/27 US cotton production estimate by 400,000 bales to 13.7 million bales in its July supply-demand report, while the global cotton supply forecast was revised upward by 300,000 bales. This implies a further rise in the global stocks-to-use ratio for the new season, reinforcing expectations of ample supply. For Chinese spinning mills, the reserve sales provide an additional low-cost raw material channel, temporarily easing cost pressures but also partially substituting immediate demand for imported cotton.
Brazil's Conab reported a 2025/26 cotton output estimate of 4.0598 million tons, down 0.5% year-on-year, with planted area falling 3.2% to 2.0186 million hectares. Though acreage declined, higher yields kept production largely flat, maintaining high South American supply levels. Brazilian cotton, a major source for Chinese imports, continues to exert downward pressure on global prices.
Market Sentiment: Weak Dollar and Commodity Divergence
The US dollar index declined on the day, which usually supports dollar-denominated cotton futures, but prices failed to rebound, indicating that industry-level bearish factors dominated. US stocks rose on solid bank earnings and lower inflation, while oil prices climbed due to Middle East tensions, but cotton's price logic remains tied to weak downstream demand expectations. StoneX broker noted the market reaction to China's reserve sales was 'profit-taking after expectations were met,' suggesting that the prior rally had already priced in bullish factors.
Notably, ICE-certified deliverable cotton stocks fell to 121,285 bales, down 5,842 bales from the previous session. This decline indicates reduced willingness to deliver, with sellers preferring to hold physical inventory rather than register warrants, reflecting bearish price expectations.
Industry Chain Transmission: Time Lag from Futures to Spot
The Cotlook A index held at 90.70 cents per pound on July 14, unchanged from the prior day, with spot prices not immediately following futures lower. This divergence is typical during initial policy shifts—spot traders need time to digest information and adjust quotes. For downstream weaving and garment companies, raw material purchasing decisions will become more cautious: reserve sales mean a steady policy-driven supply over the next month, prompting firms to delay spot purchases until the auction floor price is clear.
For export-oriented firms, the combined effect of yuan exchange rate fluctuations and falling cotton prices warrants attention. If cotton prices continue to decline, export order competitiveness may improve, but inventory devaluation risks also rise.