The long-anticipated release of China's state cotton reserves has finally materialized, but the market's reaction was not a simple case of 'buy the rumor, sell the fact.' On July 14, the most-active ICE December cotton futures contract settled at 80.87 cents per pound, down 0.64 cents or 0.79%, erasing part of the previous week's gains. This move clearly indicates that the confirmation of a policy signal, against a backdrop of already-weakening fundamentals, triggered concentrated profit-taking by long positions.
Background: Reserve Release and Production Forecasts
China National Cotton Reserves Corporation announced on July 14 that, in accordance with national requirements and to better meet the needs of spinning mills, it would begin selling part of its central reserve cotton on each national business day starting July 20. The daily volume will be arranged dynamically based on market conditions. This announcement confirmed market rumors that had been circulating. StoneX senior broker Valentin Olah noted that while the market had largely priced in the release, the official news prompted profit-taking after last week's rally, which was the main driver of the day's weakness.
Concurrently, the USDA's July WASDE report raised its 2026/27 US cotton production estimate by 400,000 bales to 13.7 million bales, and the global supply estimate was also revised up by 300,000 bales. This reinforced expectations of a looser supply outlook for the coming season, compounding the pressure from the reserve release. In contrast, Brazil's Conab reported a slight decline: 2025/26 production is estimated at 4.0598 million tons, down 0.5% year-on-year, with planted area down 3.2% to 2.0186 million hectares. While this minor reduction offers some support, it is insufficient to offset the broader supply picture.
Industry Impact: Reshaping the Domestic-Import Price Spread
For the domestic textile chain, the reserve release directly impacts procurement costs and timing. Starting just as the traditional off-season transitions into autumn/winter order preparations, the timely injection of supply will help fill raw material gaps for mills facing quota shortages or high import prices. This will stabilize domestic spot prices but also cap any significant upside in the near term.
From an international perspective, the pullback in ICE futures creates a new dynamic for the domestic-import spread. The Cotlook A Index currently sits at 90.70 cents/lb. If reserve sales continue and ICE remains under pressure, the cost advantage of imported cotton may narrow. Export-oriented mills should closely monitor this spread to adjust their procurement mix. Additionally, the simultaneous decline in CBOT soybeans and corn on July 14 reflects a broader profit-taking wave across the agricultural complex as weather premiums fade, indirectly weighing on cotton sentiment.