The release of reserve cotton has been finalized, putting short-term pressure on cotton prices, but medium-term support remains solid. The 2026 central reserve cotton sales, starting July 20, adopt a dual-anchor pricing mechanism equally weighted by domestic and international spot indices, with a base price of approximately 16,216 yuan/ton, below current market prices and attractive to spinning mills. However, strict trading rules limit participation to textile enterprises only, with purchased cotton for self-use and resale prohibited, barring traders and speculative funds. The bidding atmosphere is expected to be rational.
Inventory Depletion and Supply Gap
Domestic commercial cotton stocks have dropped from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a decline of more than half. Stocks in Xinjiang are only 1.6712 million tons, with high-grade spot resources tightening. With nearly two months until the new cotton harvest, there is a risk of temporary shortages. The reserve release aims to smooth the transition between old and new cotton seasons, avoiding drastic price fluctuations. However, the downstream textile sector is in its traditional off-season, with mill operating rates in major regions falling to 73.1% and yarn inventories accumulating to 30 days. Enterprises are purchasing only for immediate needs, with little willingness to stockpile. This means the new supply from reserves will struggle to find strong buying support in the short term.
Global Production Cuts and Weather Disruptions
From a global perspective, medium-term cotton prices have solid support. The latest USDA supply-demand report forecasts 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the market toward a tight balance. Meanwhile, Xinjiang cotton fields are in a critical growth stage, with persistent high temperatures in July pressuring crop development, fueling expectations of a reduced new-season harvest. With the current domestic-international price spread at 3,010 yuan/ton, the dual-anchor pricing mechanism means international price fluctuations directly affect reserve cotton base prices. A stronger external market would raise release costs, further limiting downside room for domestic prices.
Market Game and Short-Term Rhythm
On the futures front, the negative impact of the release has already been priced in. Zhengzhou cotton futures closed at 16,075 yuan/ton on July 15, down 45 yuan. In the short term, when the first auction begins on July 20, mills with low inventories will likely bid actively, especially for regular yarn production, providing some price support. However, as the release progresses, cumulative supply will pressure near-term contracts, capping upside potential. The 16,000 yuan/ton level will face repeated tests. Over the medium term, the release only temporarily supplements supply and cannot change the core logic of global production cuts and scarce high-quality Chinese cotton. Once the release nears its end, market focus will shift to Xinjiang cotton growth, new-season opening prices, and downstream demand recovery during the 'golden September and silver October' season, reinforcing price support.