On July 20, China Reserve Cotton will officially launch the 2026 central reserve cotton release, with daily listings but no fixed total volume or end date. This policy ends market anticipation, intensifying the tug-of-war around the 16,000 yuan/ton level for Zheng cotton futures.
Supply Gap Meets Weak Demand
Domestic cotton commercial 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 over 50%. Xinjiang stocks are only 1.6712 million tons, with high-grade supplies tightening. With nearly two months until new cotton enters the market, the release aims to smooth the supply gap and prevent price volatility.
However, downstream demand offers little optimism. The textile industry is in its off-season, with operating rates in major regions falling to 73.1% and yarn inventories piling up to 30 days. Mills are purchasing only for immediate needs, with little appetite for stockpiling. This means new reserve cotton will struggle to find strong buying support in the short term, creating a delicate supply-demand balance.
Optimized Trading Rules Curb Speculation
This year's trading rules are more refined. Pricing uses a dual-anchor mechanism based on domestic and international cotton spot indices, each with 50% weight, with floor prices adjusted weekly. Based on recent spreads, the floor price is around 16,216 yuan/ton, offering a clear advantage over spot prices, attracting cash-strapped mills.
Crucially, eligibility is restricted to physical textile mills, and purchased cotton must be used for self-production only, with resale banned. Violators face permanent disqualification from reserve transactions. This effectively shuts out traders and speculative capital, promoting rational bidding. Prices are expected to stay close to the floor. Market consensus suggests the released cotton will be primarily imported, with stable quality but limited high-grade varieties, unable to meet high-count yarn needs. The scarcity of premium Xinjiang cotton will persist.
Global Production Cuts Support Long-Term Prices
Globally, long-term cotton prices have solid support. The latest USDA report forecasts 2026/2027 global production at 25.53 million tons, down 3.8% year-on-year, pushing the market toward a balanced supply-demand dynamic. The current domestic-international price spread of 3,010 yuan/ton means international volatility will directly feed into reserve floor prices, limiting downside.
Domestically, Xinjiang cotton fields are in a critical growth phase, with persistent high temperatures since July pressuring yields, fueling expectations of a new-season production drop. These factors underpin long-term prices.
Short-Term Pressure, Long-Term Floor
The bearish impact of the release has been priced in. On July 15, Zheng cotton's main contract closed at 16,075 yuan/ton, down 45 yuan. In the near term, the first auction on July 20 may see active bidding from mills with low inventories, providing temporary support. Combined with Xinjiang heat concerns, a deep sell-off is unlikely.
But as releases accumulate, supply pressure will weigh on near-month contracts, capping upside. The 16,000 yuan level will be repeatedly tested. Over the long term, the release only temporarily bridges supply gaps; it cannot alter the core logic of global production cuts and domestic premium cotton scarcity. Once the release winds down, market focus will shift to Xinjiang crop conditions, new-season opening prices, and the post-summer demand recovery. The price floor remains solid.