U.S. cotton futures saw a sharp pullback on July 14 as profit-taking swept the market after a recent rally. The ICE December contract fell 0.64 cents to settle at 80.87 cents per pound, a decline of 0.79%. Sentiment shifted quickly from bullish to cautious.
Reserve Sales Trigger Capital Exit
China National Cotton Reserves Corporation announced on July 14 that it would begin selling state reserve cotton starting July 20, with daily auctions on each national business day. While the move had been widely anticipated, the formal announcement prompted concentrated liquidation of long positions built up in the previous week. A StoneX senior broker noted that after a strong rally, some funds chose to lock in profits, with the reserve sale news serving as the catalyst.
For domestic cotton mills, the reserve release means a more ample short-term raw material supply, especially filling the gap for small and medium-sized spinners. However, it also implies that the spot premium driven by previous supply tightness may gradually narrow, forcing buyers to reassess their procurement pace.
USDA Report Reinforces Loose Supply Outlook
The USDA's July supply-demand report raised the 2026/27 U.S. cotton production estimate by 400,000 bales to 13.7 million bales, while the global supply forecast was revised up by 300,000 bales. This adjustment directly weakened worries about supply shortages. Although U.S. growing region weather remains uncertain, the magnitude of the production increase has exceeded some traders' expectations, building clear resistance above current prices.
Meanwhile, Brazil's Conab reported that 2025/26 cotton output is estimated at 4.0598 million tonnes, a slight 0.5% decline year-on-year, with planted area down 3.2% to 2.0186 million hectares. The limited output drop and area reduction mainly reflect crop rotation rather than weather damage, having a minor impact on global supply.
Cross-Market and Fund Flow Dynamics
CBOT soybean and corn futures also fell on the same day, pressured by improved U.S. crop ratings and reduced weather threats, triggering profit-taking across the agricultural complex. The simultaneous weakness in grains added to cotton's selling pressure. A weaker U.S. dollar index would normally support dollar-denominated cotton, but that positive was fully offset by fundamental bearishness. Oil prices rose about 2% to a one-month high, driven by the U.S. resuming a naval blockade on Iran, but this has yet to feed into cotton production costs.
ICE data showed deliverable cotton stocks fell to 121,285 bales as of July 13, down 5,842 bales from the previous day. The inventory contraction provides some support for near-month contracts, but deferred contracts remain more exposed to bearish expectations.
Short-Term Strategy: Watch Reserve Sale Pace
From an industrial perspective, the current correction is not a demand collapse but a normal adjustment triggered by policy and expectations. The volume and average price of the first week's reserve sales will be key indicators of true supply-demand balance. If sales proceed smoothly and at prices below spot, cotton could fall further to find support in the 75-78 cent range. Conversely, if sales disappoint, a rebound near 80 cents remains possible.