In mid-July, international cotton prices showed signs of correction after a rapid rally. On July 14, the ICE December contract fell 0.79% to 80.87 cents per pound, ending several days of gains. This shift was driven by China's reserve cotton release announcement and weakening demand expectations.
Background
China National Cotton Reserves Corporation announced on July 14 that it would begin selling part of its central reserve cotton from July 20, with daily offerings on each national business day, adjusting volumes based on market conditions. This policy move, widely anticipated by the market, triggered profit-taking in futures markets.
From an industry perspective, the release aims to ease cost pressures for cotton spinning mills. Domestic textile enterprises face high raw material costs and slow recovery in final orders. Reserve cotton can stabilize spot prices and reduce downstream procurement costs. However, the futures market interpreted this as a short-term supply increase signal, prompting long positions to exit.
Meanwhile, the USDA raised its 2026/27 US cotton production estimate to 13.7 million bales, up 400,000 bales from last month. Global cotton supply estimates also increased by 300,000 bales, suggesting a looser supply-demand balance and rising inventory rebuilding expectations.
Industry Impact
Brazil, the world's second-largest cotton exporter, also provided notable data. Conab reported 2025/26 Brazilian cotton output at 4.0598 million tons, down 0.5% year-on-year, with planted area shrinking 3.2% to 2.0186 million hectares. Although absolute output slightly declined, Brazilian cotton remains at historically high levels, exerting continuous supply pressure on global markets.
From a chain perspective, reserve cotton release will directly suppress domestic spot prices, thereby reducing the cost advantage of imported cotton. Coastal textile enterprises using high proportions of foreign cotton may need to adjust procurement strategies, as domestic reserve cotton's price advantage will redirect some demand.
Macro factors also influenced the cotton market. The US dollar index weakened, but US stock markets rose due to corporate earnings and inflation data. International oil prices climbed about 2% due to Middle East geopolitical risks. While these factors had limited direct impact on cotton prices, they indirectly affected the market through overall commodity sentiment.
Notably, ICE deliverable stocks stood at 121,285 bales as of July 13, down 5,842 bales from the previous day. This decline suggests weaker delivery willingness, but the overall level remains high, pressuring near-term contracts.