On July 20, the 2026 reserve cotton release will officially begin. The policy floor price is approximately 16,216 yuan/ton, offering a clear discount to current spot markets and creating direct appeal for yarn mills with immediate needs. However, the backdrop is not a simple 'gap-filling' scenario but a complex interplay of four major variables: the transition between old and new crop years, low inventory levels, weak downstream demand, and global production cut expectations.
Low Inventory and Policy Floor Price: A Double-Edged Sword
Domestic cotton commercial stocks have fallen from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a decline of over 50%. Stocks in Xinjiang are down to just 1.6712 million tons, with high-grade spot resources gradually tightening. With nearly two months until the new crop is fully available, the market already faces the risk of periodic supply shortages.
The reserve release is a counter-cyclical measure targeting this gap. The pricing mechanism uses a dual-anchor system, weighting domestic and international cotton spot indices equally, with the floor price adjusted weekly. Based on recent domestic-international price spreads, the floor price is around 16,216 yuan/ton, a clear advantage over spot markets.
However, the released cotton is primarily imported, with stable quality but limited high-grade content. This means mills producing high-count, high-end yarns still face a shortage of quality Xinjiang cotton, and the policy cannot fully replace market demand for premium grades.
Weak Downstream Demand: Restocking Fails to Break the Bearish Pattern
In contrast to tightening supply, downstream demand is notably weak. The industry has entered a traditional off-season, with mill operating rates in major regions falling to 73.1% and yarn inventories piling up to 30 days. Factories face insufficient new orders, limiting procurement to restocking for immediate needs, with little appetite for building inventory.
This data suggests that even with discounted reserve cotton entering the market, it will be difficult to generate strong buying interest to absorb incremental supply in the short term. Initial auctions may see higher participation as mills have low raw material inventories, potentially leading to some premium bids. However, as the release continues and daily volumes accumulate, the supply pressure will increasingly weigh on near-term contracts.
For buyers, conventional yarn mills should focus on the initial auction window to replenish as needed, leveraging the price advantage to smooth raw material costs. But they must be cautious of price correction risks from subsequent supply increases.
Global Production Cut Expectations: A Floor for Medium-to-Long Term Prices
Looking at the global fundamentals, medium-to-long-term cotton prices still have solid support. The latest USDA supply-demand report forecasts 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the global balance toward a tight equilibrium.
Combined with the current domestic-international price spread of 3,010 yuan/ton, the dual-anchor pricing mechanism means international price fluctuations directly affect the reserve cotton floor price. A stronger external market would raise the cost of the release, further limiting domestic price downside.
Xinjiang cotton fields are in a critical growth stage, with sustained high temperatures since July pressuring crop development, fueling expectations of a lower new crop. The reserve release can only temporarily supplement short-term circulation; it cannot change the core logic of global production cuts and domestic high-grade cotton scarcity.
Market Battle: Short-Term Pressure vs. Long-Term Support
In the futures market, the bearish impact of the release has already been priced in. On July 15, the main Zheng cotton contract closed at 16,075 yuan/ton, down 45 yuan. In the short term, initial auction demand and Xinjiang heat-related yield concerns should provide a floor, preventing a deep decline.
However, as the release progresses, supply pressure will gradually build, capping upside potential and subjecting the 16,000 yuan/ton level to repeated tests.
From a medium-to-long-term perspective, once the release nears its end, market focus will shift to Xinjiang crop conditions, new crop opening prices, and the recovery of downstream orders during the 'Golden September and Silver October' peak season. The price floor remains solid.