China National Cotton Reserves Corporation will begin selling 2026 central reserve cotton on July 20, with the first week (July 20-24) floor price for standard grade 3128B set at 16,291 yuan/ton. This price level not only provides an official cost anchor for the current cotton market but also sends a clear policy signal amid inventory speculation and external cotton price volatility.
The Dual Logic Behind the Price
The 16,291 yuan/ton floor price is not arbitrary. Per national requirements and the annual sales notice, the base price is set for standard grade 3128B, while daily lot prices are adjusted based on certified inspection results and the China Cotton Association's quality differential table. This means actual transaction prices will diverge from the floor—premium grades gain upside, while lower grades face discounts.
Industry data shows current spot prices for 3128B grade cotton hover around 16,500-16,800 yuan/ton, making the reserve floor price roughly 200-400 yuan/ton lower. This 'undercut' strategy aims to provide mills with cheaper, stable supplies to ease raw material costs, without overly depressing market prices and triggering backlash from farmers and traders.
Transmission Effects Along the Chain
For cotton spinning mills, this floor price defines a clearer cost baseline. The first-week price, combined with daily adjustments, enables spinners to build more precise pricing models for procurement. Mills producing regular counts like Ne 32 or Ne 40 will see the reserve cotton's cost advantage directly translate into competitive yarn quotes.
However, if reserve sales volumes expand, they could cap new-crop cotton prices. Current weather in Xinjiang is normal, and new-crop output expectations are stable, yet downstream grey fabric and finished fabric orders remain sluggish. Low-priced reserve cotton may intensify a 'buy on weakness, wait on strength' sentiment, with traders postponing restocking for better opportunities.
Regional Mill Responses Differ
In major cotton-spinning clusters like Shandong, Henan, and Jiangsu, small- and medium-sized mills rely heavily on reserve cotton. These firms face tight cash flow and lack hedging capability, making the 'buy-and-use' nature of reserve cotton ideal. Xinjiang-based mills, benefiting from freight subsidies, are less sensitive to reserve prices and focus on direct procurement of new crops.
Notably, the China Cotton Association's role in setting the quality differential table gives it pricing power, extending its function from information provider to price coordinator.