On July 20, the 2026 central reserve cotton release will officially commence, with daily listings. This policy lands as domestic commercial stocks have halved to 2.8388 million tons from a peak of 5.6981 million tons at the start of the year, with Xinjiang production zones holding only 1.6712 million tons, making high-quality cotton increasingly scarce. Simultaneously, the downstream textile industry enters its traditional off-season, with mill operating rates in major regions falling to 73.1% and yarn inventory piling up to 30 days, as mills only purchase for immediate needs. With supply tightening and demand weakening, Zheng Cotton's main contract oscillates around the 16,000 yuan/ton mark, reflecting complex market sentiment.
Event Background: Dual-Anchor Pricing and Entry Barriers Reshape the Game The latest release features significant rule optimizations. Pricing adopts a dual-anchor mechanism equally weighting domestic and international cotton spot indices, with the floor price adjusted weekly. Based on recent domestic-international price spreads, the floor price is estimated at around 16,216 yuan/ton, offering a clear price advantage over current spot, attracting cost-sensitive spinning mills. Strict entry barriers are also set: only physical textile enterprises can participate in bidding, and purchased reserve cotton is for self-use only, with resale and speculation prohibited. Violators face permanent disqualification from reserve cotton transactions. This effectively excludes traders and speculative capital, fostering a more rational bidding environment where transaction prices are likely to align closely with the floor price. The market generally expects the released cotton to be primarily imported, with stable quality but limited high-grade content, failing to meet demand for high-count yarn production. The tight supply of high-quality Xinjiang cotton is unlikely to ease in the short term.
Industry Impact: Short-Term Supply Pressure vs. Medium-to-Long-Term Production Cut Logic In the short term, the reserve release directly fills the supply gap between old and new cotton seasons. With nearly two months until the new cotton harvest peaks, the market inherently faces a risk of periodic supply tightness. However, downstream demand support is weak, with insufficient new orders and low willingness for active stockpiling. The inflow of new reserve cotton is unlikely to attract strong buying to absorb incremental supply in the near term. The accumulating supply pressure from daily volumes will continue to weigh on near-month contracts. Policy constraints limit cotton price upside, and the 16,000 yuan/ton level will be repeatedly tested.
Looking at the global fundamentals, medium-to-long-term cotton prices have solid support. Xinjiang cotton fields are in a critical boll development stage, with persistent high temperatures since July stressing cotton growth, fueling expectations of a new-season production decline. The latest USDA supply-demand report projects global cotton production for 2026/2027 at 25.53 million tons, down 3.8% year-on-year, shifting the global supply-demand balance toward tightness. Combined with a current domestic-international price spread of 3,010 yuan/ton, the dual-anchor pricing mechanism means international price fluctuations directly transmit to domestic reserve floor prices. A stronger external market would simultaneously raise release costs, further limiting domestic downside.