Domestic commercial cotton stocks have fallen from a peak of 5.6981 million tons at the beginning of the year to 2.8388 million tons, a decline of over 50%, with Xinjiang reserves at only 1.6712 million tons. High-grade spot resources are tightening, and with nearly two months before the new crop arrives, the supply gap is widening. Against this backdrop, the 2026 reserve cotton release policy was finalized on July 14, with sales starting on July 20. Daily listings will be flexible, with no fixed total volume or end date.
Policy Regulation and Market Dynamics
The release adopts a dual-anchor pricing mechanism equally weighted by domestic and international cotton spot indices, with the base price adjusted weekly. Based on current price spreads, the initial base price is around 16,216 yuan per ton, offering a clear advantage over spot prices. Strict entry requirements allow only physical textile enterprises to participate, and purchased cotton must be used for self-production, with resale prohibited. Violators face permanent disqualification from reserve trading, effectively excluding traders and speculative capital. Market expectations point to imported cotton as the main source, with stable quality but limited high-grade content, failing to meet demand for high-count yarns, leaving the shortage of quality Xinjiang cotton unresolved.
Weak Downstream Demand Caps Buying Interest
Despite tight supply, the downstream textile market is in a traditional off-season. Mill operating rates in major regions have dropped to 73.1%, with yarn inventories piled up for 30 days and a lack of new orders. Mills are purchasing only for immediate needs, with little appetite for stockpiling. The influx of reserve cotton is unlikely to attract strong buying in the near term. However, in the initial auction rounds, mills with low raw material inventories—especially those producing standard yarns—may show strong participation, potentially driving modest premiums and providing a price floor.
Global Production Cuts and Weather Support Mid-Term Prices
Global cotton supply-demand is shifting toward a balanced-tight pattern. The latest USDA report forecasts 2026/27 global production at 25.53 million tons, down 3.8% year-on-year. The current domestic-international price spread of 3,010 yuan per ton means international price movements will directly affect reserve cotton base prices, limiting downside. Additionally, Xinjiang cotton fields are in a critical boll-setting stage, with persistent high temperatures in July raising expectations of production cuts, providing solid support for forward prices.
Short-Term Volatility, Resilient Mid-Term Floor
The bearish impact of the release has already been priced in, with Zhengzhou cotton futures weakening ahead of the announcement. On July 15, the main contract closed at 16,075 yuan per ton, down 45 yuan. In the short term, as the release progresses, accumulated supply will pressure near-term contracts, limiting upside and testing the 16,000 yuan level repeatedly. In the medium term, the release only temporarily supplements circulating supply and does not alter the core logic of global production cuts and domestic quality shortages. 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 peak season, with a solid price floor remaining intact.