A wave of profit-taking is pulling cotton futures back from recent highs. On July 14, the most active ICE December contract settled at 80.87 cents per pound, down 0.79%. The market is not suddenly turning bearish, but multiple signals point to accumulating supply-side pressure.
Background: Reserve Sales and Production Expectations Converge
China National Cotton Reserves Corporation announced that it will start selling some central reserve cotton on each working day from July 20. While this policy was widely anticipated, its formal announcement still triggered market reaction. A StoneX broker noted that cotton futures had experienced a notable rally last week, and after the announcement, some funds chose to lock in profits. For Chinese cotton mills, reserve sales mean short-term cotton costs may stabilize, especially when current cotton prices are relatively high. This policy signal directly influences purchasing pace.
Meanwhile, the USDA's July supply-demand report raised its 2026/27 US cotton production estimate by 400,000 bales to 13.7 million bales, and the global supply estimate was also raised by 300,000 bales. The production increase expectation is not baseless—US crop rating data shows that weather conditions in major producing areas have not posed a substantial threat, providing a basis for output realization. In Brazil, Conab data shows 2025/26 cotton production is expected at 4.0598 million tons, down 0.5% year-on-year, but planted area decreased 3.2% to 2.0186 million hectares, with higher yields partially compensating for the area reduction.
Industry Impact: Short-Term Supply Abundance Suppresses Price Elasticity
The combination of reserve cotton sales and global production increases is reshaping the short-term supply-demand balance of the cotton market. For Chinese cotton textile enterprises, the continuous release of reserve cotton will directly increase available supply, especially when import cotton quotas are limited. The cost advantage of domestic reserve cotton will attract many small and medium-sized spinners to participate in auctions. This means that in the coming weeks, liquidity in the domestic cotton spot market will significantly improve, and price elasticity may be suppressed.
From a global perspective, the increase in US cotton production and Brazil's high output levels will likely push the 2026/27 global cotton stocks-to-use ratio higher. This structurally pressures international cotton prices—even if downstream textile and apparel exports show seasonal recovery, upside space for cotton prices will be constrained by ample supply. For Southeast Asian textile mills that rely heavily on imported cotton, this represents a relatively favorable procurement window.
Notably, ICE cotton futures inventory has dropped to 121,285 bales, down 5,842 bales from the previous day, indicating some tightening in deliverable supply. But this did not stop futures prices from falling, suggesting the market is more focused on expected new-crop supply increments rather than current inventory levels.