On July 20, the 2026 reserve cotton release will officially begin. The latest details from China National Cotton Reserves show that this round adopts a dual-anchor pricing mechanism with equal weights for domestic and international spot indices, setting a base price of approximately 16,216 yuan/ton, a clear discount compared to current market prices. However, strict thresholds are imposed: only physical textile enterprises can participate for self-use, resale is strictly prohibited, and violators face permanent disqualification. This is essentially a targeted operation to supply low-cost raw materials to spinning mills, completely isolating traders and speculative capital.
Dual Pressure from Supply Gap and Weak Demand
Current domestic commercial cotton stocks have plummeted from a peak of 5.6981 million tons at the beginning of the year to 2.8388 million tons, a decline of over 50%. Xinjiang production area stocks are only 1.6712 million tons, with high-grade spot resources continuing to tighten. With nearly two months until the new cotton crop is fully available, the market inherently faces the risk of periodic supply shortages. The reserve cotton release is designed to smooth this supply gap during the transition between old and new crops, preventing sharp price fluctuations.
However, downstream demand is not cooperating. The textile industry has entered the traditional off-season, with operating rates in major regions falling to 73.1% and yarn stocks accumulating to 30 days. Factories lack new orders, and procurement is limited to rigid replenishment, with low willingness to build inventories. This means that new reserve cotton entering the market will struggle to attract strong buying support in the short term. With tight supply on one side and weak demand on the other, cotton prices are trapped in a typical range-bound pattern with clear upside and downside limits.
Global Production Decline: Medium- to Long-Term Price Support
Despite obvious short-term supply pressure, global cotton production decline expectations provide solid support for longer-term prices. The latest USDA supply-demand report estimates 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year, pushing the global supply-demand balance toward a tight equilibrium. Meanwhile, the current domestic-international cotton price spread remains high at around 3,010 yuan/ton. Under the dual-anchor pricing mechanism, fluctuations in international cotton prices will directly influence the base price of reserve cotton releases. If external markets strengthen, it will simultaneously raise the cost of reserve cotton, further limiting the downside for domestic prices.
Additionally, Xinjiang cotton fields are in the critical boll development stage. Persistent high temperatures since July have put pressure on cotton growth, fueling market expectations of reduced new-season output. These factors combined make the medium- to long-term floor for cotton prices relatively solid. Reserve releases can only temporarily supplement short-term circulating supply; they cannot change the core logic of global production decline and domestic high-quality cotton scarcity.
Market Game: Repeated Battles Around the 16,000 Mark
From a market perspective, the bearish impact of the reserve release has already been priced in. On July 15, the main Zheng cotton contract closed at 16,075 yuan/ton, down just 45 yuan. In the short term, when the first round of bidding opens on July 20, spinning mills generally have low raw material inventories, and demand for replenishment from regular yarn producers is strong. Initial transactions may see some premium, and rigid demand can temporarily support spot and futures prices. Coupled with Xinjiang's heat-related production concerns, a deep decline is unlikely.
However, as the release continues, daily supply accumulation will gradually exert pressure. This supply increase will persistently weigh on near-month contracts, limiting upside potential. The 16,000 mark will be tested repeatedly. Over the medium to long term, as the release nears its end, market focus will shift to Xinjiang cotton growth, new-crop opening prices, and the recovery of downstream orders during the "golden September and silver October" peak season. The price floor remains solid.