On July 20, China National Cotton Reserves Corporation will launch the 2026 reserve cotton release, with daily listings but no fixed total volume or end date. The pricing adopts a dual-anchor mechanism weighting domestic and international spot indices equally, with the base price adjusted weekly—currently estimated at around 16,216 yuan/tonne, significantly below spot market levels. Only physical textile enterprises can participate in bidding, and resale is strictly prohibited; violators face permanent disqualification. The policy is clear: ensure supply and stabilize prices, not suppress cotton prices.
Supply Gap vs. Weak Demand
The direct trigger for the release is the continuous destocking of domestic commercial inventories. From a peak of 5.6981 million tonnes at the start of the year, stocks have fallen to 2.8388 million tonnes, a decline of over half. Xinjiang production areas hold only 1.6712 million tonnes, with high-grade spot resources tightening. With nearly two months until the new cotton harvest enters the market, the reserve release aims to smooth the supply gap between old and new crops and avoid sharp price fluctuations.
However, the downstream textile market is in its traditional off-season, with demand support notably weak. Operating rates at major spinning mills have fallen to 73.1%, and yarn inventories have built up to 30 days. With insufficient new orders, mills are only replenishing on a need-to basis, showing little willingness to stockpile actively. This means that once reserve cotton enters the market, it will be difficult to generate strong buying interest to absorb the incremental supply in the short term—a mismatch in timing between supply and demand.
Global Production Cuts Bolster Medium-Term Floor
Globally, fundamentals provide solid support for cotton prices. The latest USDA supply-demand report projects 2026/27 world cotton production at 25.53 million tonnes, down 3.8% year-on-year, shifting the global balance toward tightness. Meanwhile, the current domestic-international cotton price spread remains high at 3,010 yuan/tonne. Under the dual-anchor pricing mechanism, fluctuations in international prices will directly transmit to the reserve cotton base price. A stronger offshore market will simultaneously raise the cost of reserve releases, compressing the downside for domestic prices.
Domestically, Xinjiang cotton fields are in a critical boll development stage. Persistent high temperatures since July have stressed cotton growth, fueling market expectations for a reduced new-season harvest. The scarcity of high-quality Xinjiang cotton is unlikely to ease in the short term, providing underlying support for forward prices.
Market Game: Short-Term Pressure, Long-Term Support
The bearish impact of the reserve release has been partially priced in. On July 15, the main Zhengzhou cotton futures contract closed at 16,075 yuan/tonne, down 45 yuan for the day. In the near term, as the first round of bidding begins on July 20, mills generally have low raw material inventories. Regular yarn producers have strong replenishment needs and will likely bid actively, with initial transactions possibly commanding some premium. This demand-driven support, combined with the high-temperature-induced production cut expectations in Xinjiang, should prevent a deep decline in the market.
But as the release progresses, the daily accumulation of offered volumes will gradually exert supply pressure. This cumulative effect will weigh on near-month contracts, with upside clearly capped by policy. The 16,000 yuan/tonne level will be repeatedly tested. Over the medium to long term, the reserve release can only temporarily supplement short-term circulating supply; it cannot change the core logic of global production cuts and domestic high-quality cotton scarcity. As the release nears its end, market focus will shift to Xinjiang cotton growth conditions, the new-season opening price, and downstream order recovery during the traditional peak season. The price floor remains solid.