Following China's announcement of reserve cotton sales, ICE cotton futures saw a notable correction on July 14. The December contract settled at 80.87 cents/lb, down 0.64 cents or 0.79% from the previous session. This move confirms the market's preemptive reaction to policy-driven supply increases and reflects weakening near-term demand expectations.
Background
China National Cotton Reserves Corporation announced on July 14 that it would start selling part of its central reserve cotton on each national working day starting July 20, with daily volumes adjusted flexibly based on market conditions. Although this sales plan was widely expected, the formal announcement triggered profit-taking in the futures market. StoneX senior broker Valentin Olah noted that after last week's sharp rally, some funds chose to cash in gains.
Meanwhile, the USDA raised its 2026/27 US cotton production estimate by 400,000 bales to 13.7 million bales in its July supply-demand report, while the global cotton supply forecast was revised up by 300,000 bales. This implies a further increase in the global stocks-to-use ratio for the new season, putting sustained pressure on forward prices.
Industry Impact
From a supply chain perspective, the most direct impact of reserve cotton sales is increasing short-term spot supply. For domestic spinning mills, this means a temporary relief in raw material costs. However, the pace and volume of sales will directly influence Zhengzhou cotton futures prices, which in turn affect pricing of downstream products like yarn and grey fabric.
Notably, Brazil's National Supply Company reported that 2025/26 cotton output is estimated at 4.0598 million tons, down 0.5% year-on-year, but planted area shrank 3.2% to 2.0186 million hectares. This indicates active planting structure adjustments in South American cotton regions, but the output decline is limited, and the global supply glut remains unchanged.
On the macro front, the US dollar index fell, while US stocks rose on solid bank earnings and lower-than-expected inflation. Oil prices climbed about 2% due to geopolitical tensions near Iran. These factors provided indirect support to cotton prices but failed to offset fundamental bearish pressures.