The latest weekly export sales report from the US Department of Agriculture showed that net sales of US cotton for the 2025/26 marketing year were only 34,360 bales for the week ending July 9, marking the lowest level of the season. This data directly triggered a 2.76% plunge in the ICE cotton futures December contract, settling at 79.30 cents per pound. For domestic textile companies reliant on imported cotton, the volatility in overseas markets is transmitting to Zhengzhou cotton through both import costs and market sentiment, while the upcoming auction of China's state reserve adds a new variable to the domestic market.
Demand Gap Behind Export Slump
Weekly net sales plummeted 48% from the prior week and were 63% below the four-week average. Net sales to China even turned negative, with a reduction of 32 bales. What does this mean? It indicates that Chinese buyers are significantly scaling back purchases of US cotton against a backdrop of persistently inverted spreads between domestic and imported cotton. The announcement of China's state reserve cotton auction is widely expected to release stocks at prices below the spot market, further dampening short-term demand for imports.
More concerning is the structural issue. Forward sales for the next marketing year were only 4,075 bales, with zero sales to China. This reflects that the world's largest cotton consumer has virtually no appetite for forward US cotton. From an industry logic perspective, Chinese mills' dependence on US cotton is systematically declining—Brazilian and Australian cotton are increasingly competitive on price, while the domestic Xinjiang cotton supply chain is becoming more self-sufficient.
Double Drag from Consumption and Macroeconomy
June US retail sales data added further gloom to cotton demand expectations. While overall retail sales rose 0.2% month-on-month, apparel sales plunged 9% month-on-month. Cotton broker Keith Brown noted that consumers are shifting spending from clothing to necessities like gasoline and food. This aligns with the macro backdrop of still-high US CPI growth and impaired household purchasing power.
For Chinese textile exporters, this implies that the destocking cycle in the US end-market may be longer than anticipated. Typically, there is a 3-6 month lag between US apparel sales and Chinese textile exports. The weakness in June retail data will gradually feed into future orders. Coupled with a strengthening US dollar suppressing emerging market currencies, Southeast Asian buyers are also curtailing purchases, creating a multi-regional demand contraction.
Domestic Pricing Anchor: Reserve Auction
China's state reserve cotton auction, set to begin next Monday, is the most important domestic variable influencing Zhengzhou cotton. Historically, reserve releases are priced 100-300 yuan/ton below the average market price to stabilize raw material costs. The timing is notable—occurring just as international prices have crashed. The auction floor price will serve as a critical reference for the short-term bottom of Zhengzhou cotton.
If the floor price is significantly lower than current spot levels, it will accelerate the convergence of domestic prices toward reserve levels, compressing traders' arbitrage margins. Conversely, a high floor price could lead to low auction turnover and fail to effectively relieve supply pressure. As of July 15, deliverable ICE cotton stocks fell to 98,838 bales, down 1,774 bales from the previous day, indicating that commercial hedgers are actively reducing positions, having already priced in downside risks.