On July 20, the 2026 central reserve cotton release will officially begin, with CNCRC issuing implementation rules. Daily sales volumes will be adjusted flexibly based on market supply and demand, with no fixed end date. This is a direct policy response to the supply gap during the transition between old and new cotton seasons, following a sharp decline in inventories since the start of the year.
Inventory Drawdown Accelerates, Supply Gap Emerges
Domestic cotton commercial stocks have fallen from a peak of 5.6981 million tons at the beginning of the year to 2.8388 million tons, a drop of over 50%. Xinjiang产区 inventories alone stand at 1.6712 million tons, with high-grade spot resources tightening. With nearly two months until the new cotton crop is fully available, the market faces a risk of temporary supply shortages. The reserve release aims to smooth this transition and prevent sharp price volatility.
However, downstream demand remains weak. The industry is entering its traditional off-season, with mills reporting insufficient new orders. Operating rates in major producing regions have fallen to 73.1%, and yarn inventories have piled up for 30 days. Mills are purchasing only for immediate needs, with little appetite for stockpiling. The influx of reserve cotton will struggle to find strong buying support in the short term.
Trading Rules Optimized to Curb Speculation
This release adopts a dual-anchor pricing mechanism, with domestic and international cotton spot indices each accounting for 50% of the base price, which is adjusted weekly. Based on recent domestic-international price spreads, the reserve cotton base price is approximately 16,216 yuan per ton, offering a clear advantage over current market spot prices. Strict eligibility criteria are in place: only实体 textile mills can participate, and purchased reserve cotton must be for self-use only, with resale prohibited. Violators face permanent disqualification from reserve cotton trading, effectively barring traders and speculative capital from the market.
Market consensus expects the released cotton to be primarily imported, with stable overall quality but limited high-grade content, failing to meet the needs of high-count yarn production. This means the tight supply of high-quality Xinjiang cotton will persist in the short term, forcing premium yarn mills to seek alternative sources.
Global Production Decline Supports Long-Term Floor
Globally, the latest USDA report projects 2026/27 world cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the supply-demand balance toward a tight equilibrium. Meanwhile, Xinjiang cotton fields are in the critical boll development stage, with persistent high temperatures since July stressing crop growth and fueling expectations of a reduced new-season harvest. Coupled with a domestic-international price spread of 3,010 yuan per ton, fluctuations in international cotton prices will directly impact reserve cotton base prices. A strengthening foreign market would raise release costs, further limiting downside for domestic prices.
Market Sentiment: Short-Term Pressure, Long-Term Support
The bearish impact of the release was already priced in. Zheng cotton futures had weakened before the rules were announced, closing at 16,075 yuan per ton on July 15, down 45 yuan. In the short term, as the first auction begins on July 20, mills with low raw material inventories—especially those producing standard yarns—will show strong buying interest, potentially driving some premium in early transactions. This demand can provide a temporary floor for spot and futures prices. However, as the release continues, the cumulative supply will gradually exert pressure, capping upside potential and keeping the 16,000 yuan level contested.
Over the medium to long term, the reserve release only temporarily supplements circulating supply; it cannot alter the core fundamentals of global production decline and domestic high-quality cotton scarcity. As the release winds down, market focus will shift to Xinjiang crop progress, new-crop opening prices, and the recovery of downstream orders during the peak 'Golden September and Silver October' season, maintaining solid price support.