The release of state reserve cotton is an annual routine bridging the old and new crop years, but the 2026 round draws particular attention. Domestic commercial inventory has plummeted from 569.81 million tons at the start of the year to 283.88 million tons, a drop of over half, with Xinjiang stocks at just 167.12 million tons. With two months until the new crop arrives, market concerns over a temporary supply crunch have been brewing. The detailed rules released by CNCRC on July 14 finally brought clarity: starting July 20, daily listings will occur on each working day, with total volume and end date unspecified, and daily scale adjusted flexibly based on market conditions.
Policy Design: Balancing Price Stability and Speculation Control
The pricing mechanism adopts a dual-anchor model, weighting domestic and international cotton spot indices equally, with the base price adjusted weekly. Based on the current spread of about 3,010 yuan/ton, the first-week base price is around 16,216 yuan/ton, significantly below spot market quotes, making it attractive for cash-strapped spinning mills. More importantly, bidding is strictly limited to textile enterprises, and purchased cotton is for self-use only, with resale prohibited. Violators face permanent disqualification. This design effectively excludes traders and speculative funds, fostering a more rational bidding environment where transaction prices are likely to hover near the base price. Market consensus expects the released cotton to be primarily imported, with stable quality but limited high-grade content, meaning the tight supply of high-quality Xinjiang cotton will persist.
Supply and Demand: Incremental Supply Meets Weak Demand
On the supply side, the release can smooth the supply gap between crop years and prevent sharp price fluctuations. However, demand support remains tepid. The textile industry is in its traditional off-season, with new orders insufficient. Mill operating rates in major regions have fallen to 73.1%, and yarn inventories have built up to 30 days. Enterprises are only restocking on a need-to basis, with little appetite for hoarding. This means the new supply is unlikely to meet strong buying interest in the short term. The tug-of-war between supply and demand limits upward price potential, with the 16,000 yuan/ton level likely to be tested repeatedly.
Global Perspective: Production Cuts Support a Solid Floor
From a global perspective, medium- to long-term cotton prices have solid support. The latest USDA report projects 2026/27 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the supply-demand balance toward a tight equilibrium. Combined with ongoing heatwaves in Xinjiang during the critical boll-setting stage, market expectations for a new-season production shortfall are rising. Under the dual-anchor pricing mechanism, international price fluctuations directly impact domestic reserve base prices, and a stronger international market would raise release costs, further limiting downside. In the short term, the bearish impact of the release has been largely priced in, with Zhengzhou cotton futures already weakening. During the initial bidding rounds, mills with low inventories are likely to participate actively, providing a temporary floor. However, as the release progresses, accumulating supply will pressure near-term contracts. Over the medium to long term, the release only temporarily bridges supply gaps but cannot alter the core logic of global production cuts and domestic high-quality cotton scarcity. As the release winds down, market focus will shift to Xinjiang crop conditions, new-crop opening prices, and downstream seasonal demand recovery.