This week (July 13-17), China's cotton market showed clear signs of cooling. The core drivers came from two directions: domestically, the official announcement of central reserve cotton sales corrected the market's previous tight supply expectations; overseas, US cotton export data hit a yearly low and drought areas in major production regions shrank, dampening bullish sentiment. Both domestic and international cotton prices fell, with the price gap narrowing by 310 yuan/ton week-on-week, a decline of 9.7%.
Reserve Cotton Enters Market: Precision Supply to Curb Speculation
On July 15, China National Cotton Reserves Corporation announced the public auction of some central reserve cotton starting July 20, exclusively for textile mills. The first week's floor price was set at 16,291 yuan/ton, while the National Cotton Price B Index averaged 17,659 yuan/ton, a spread exceeding 1,300 yuan/ton. This gives mills a clear cost advantage through bidding.
The move aims to precisely fill the supply gap amid mill operating rates rising 1.1 percentage points year-on-year to 79.7%, and the share of mills planning to purchase cotton increasing 9.9 percentage points. It also discourages hoarding by traders. The Zhengzhou cotton futures main contract settled at an average of 16,057 yuan/ton, down 148 yuan/ton from the previous week, indicating the market had already priced in this bearish factor.
Weak US Exports vs. Strong Brazilian Cotton
International pressure is equally significant. As of the week ending July 9, US cotton export sales and shipments continued to weaken, hitting a new yearly low. Meanwhile, the USDA July report narrowed the 2026/27 global cotton production-consumption gap by 223,000 tons from June, with global ending stocks of 15.51 million tons remaining relatively high.
Brazilian cotton maintained its strong momentum. According to SECEX, daily exports in the second week of July averaged about 10,000 tons, surging 81.5% year-on-year. Benefiting from record production, price advantages, and improved logistics, Brazil has solidified its position as the world's largest cotton exporter, persistently pressuring US cotton. Notably, the USTR plans to impose 25% tariffs on thousands of Brazilian goods from July 22, including apparel. This could weaken the Brazilian real, further boosting Brazil's dollar-denominated export competitiveness.
Weather Premium Persists in Critical Window
Northern Hemisphere cotton is entering a key growth phase. As of July 12, US cotton's good-to-excellent rate stood at 44%, down 2 percentage points week-on-week; about 46% of US cotton areas face some drought. Texas and other main regions are experiencing persistent high temperatures. The next 2-3 weeks are critical for yield formation; if hot and dry weather continues, yield expectations could be further downgraded.
Domestically, most cotton in Xinjiang is in the flowering and boll-setting stage, with generally favorable light and heat conditions, though persistent high temperatures in the coming week need monitoring. In Hunan and Hebei, growth is stable; in Hebei, boll numbers have reached over 10, but mid-to-top boll numbers may be limited during the dog days, posing risks to later yields.
Macro and Policy Dual Disturbances
On the macro front, global inflation expectations are heating up. A New York Fed survey shows over 40% of firms plan to pass on tariff costs through price increases. Geopolitical tensions in the Middle East have pushed Brent crude above $88/barrel. Both energy and tariff factors are jointly fueling global inflation expectations, which could indirectly support cotton prices.
Domestically, June retail sales of consumer goods grew 1.0% year-on-year, turning positive from negative; sales of apparel, footwear, and textiles by units above designated size grew 3.9%, significantly faster than overall retail. Consumption resilience supports the textile chain, but external demand remains affected by the international trade environment, and export order recovery still needs time.
Short-Term Outlook: Range-Bound Consolidation
In summary, the reserve cotton release will increase domestic supply, with the first week's floor price significantly below spot. This is expected to suppress cotton prices in the short term. However, genuine mill restocking demand exists, and weather premiums have not fully dissipated. Cotton prices are likely to remain range-bound.