The 2026 reserve cotton release policy has been finalized, with the China National Cotton Reserves Corporation announcing daily sales starting July 20. The total volume and end date are not fixed, and daily scales will be adjusted flexibly based on market conditions. This move comes at a critical juncture of the old-new cotton crop transition, declining commercial stocks, and a traditional off-season downstream, creating a hedge between short-term supply increases and medium-term fundamental support. The Zhengzhou cotton futures 16,000 yuan per ton mark has become the focal point of a tug-of-war between bulls and bears.
Policy Mechanism and Market Reaction
The release adopts a dual-anchor pricing mechanism, with domestic and international cotton spot indices each accounting for 50% of the weight, and the floor price adjusted weekly. Based on recent domestic-foreign cotton price spreads, the floor price is about 16,216 yuan per ton, offering a clear price advantage over the current spot market, making it attractive to demand-driven spinning mills. Strict entry requirements are set: only physical textile enterprises can participate, and purchased cotton is for self-use only, with resale prohibited. Violators face permanent disqualification from reserve transactions, effectively excluding traders and speculative funds. Market expectations are that the released cotton will be primarily imported, with stable overall quality but limited high-grade content, failing to meet high-count yarn production needs and leaving the tight supply of high-quality Xinjiang cotton unresolved in the short term.
Supply Gap Amid Weak Downstream Demand
The core purpose of the reserve release is to bridge the supply gap during the old-new crop transition. Domestic commercial cotton stocks have been steadily declining, from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a drop of over half. Xinjiang stocks alone stand at 1.6712 million tons, with high-grade spot resources tightening. With nearly two months until the new crop concentrates on the market, the release can smooth the transition and prevent sharp price fluctuations. However, downstream textile demand remains weak, with the industry in a traditional off-season. Mills report insufficient new orders, operating rates in major regions have fallen to 73.1%, and yarn inventories have piled up to 30 days. Enterprises are only restocking for immediate needs, with little enthusiasm for building inventory. The inflow of new reserve cotton is unlikely to attract strong buying interest to absorb the incremental supply in the short term.
Global Production Cuts and Weather Provide Long-Term Support
From a global perspective, medium- to long-term cotton prices still have solid support. Xinjiang cotton fields are in the critical boll development stage, and persistent high temperatures since July have pressured growth, fueling market expectations of a reduced new crop. The latest USDA supply-demand report projects 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the global supply-demand balance toward a tight equilibrium. Combined with the current domestic-foreign cotton price spread of 3,010 yuan per ton, the dual-anchor pricing mechanism means that international price fluctuations directly affect the reserve floor price. A stronger foreign market will raise the release cost, further limiting domestic price downside.
Market Dynamics and Operational Rhythm
The bearish impact of the release had already been priced in, with Zheng cotton weakening ahead of the policy details. On July 15, the main contract closed at 16,075 yuan per ton, down 45 yuan. In the short term, as the first auction kicks off on July 20, mills with generally low raw material inventories and strong restocking needs for regular yarn will likely participate actively, potentially driving some premium in initial bids. This demand, combined with Xinjiang heat-related production cut expectations, should prevent a deep price decline. However, as the release continues and daily supplies accumulate, the supply-side pressure will gradually weigh on near-month contracts, capping upside and repeatedly testing the 16,000 yuan mark. Over the medium to long term, the release only temporarily supplements short-term circulation; it cannot change the core logic of global production cuts and domestic high-quality cotton scarcity. As the release winds down, market focus will shift to Xinjiang cotton growth, new crop opening prices, and the recovery of downstream 'Golden September and Silver October' peak season orders, with the price floor remaining solid.