On July 20, the 2026 reserve cotton release will officially begin. Before this policy was finalized, Zheng cotton had been under pressure for days, with the main contract repeatedly fluctuating around the 16,000 yuan/ton psychological level. The short-term supply increment from the release contrasts sharply with global production cut expectations and the scarcity of high-quality domestic cotton, creating a critical tug-of-war in the market.
Supply Gap and Policy Countermeasures
Current domestic cotton commercial inventories 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 production areas hold only 1.6712 million tons, with high-grade spot resources tightening rapidly. With nearly two months until the new cotton crop is concentrated on the market, there is a clear risk of phased supply shortages. The core purpose of the reserve release is to fill this gap during the transition between old and new cotton seasons, preventing sharp price fluctuations.
The release adopts a dual-anchor pricing mechanism, weighting domestic and international cotton spot indices equally at 50% each, with the floor price adjusted weekly. Based on recent domestic-international price spreads, the floor price is approximately 16,216 yuan/ton, offering a clear price advantage over current market spots. At the same time, trading rules strictly limit participation to physical textile enterprises, and purchased cotton must be for self-use only, with resale prohibited. Violators will have their trading qualifications permanently revoked, effectively blocking speculators and ensuring a more rational bidding atmosphere.
Weak Downstream Demand Restricts Buying
Despite supply-side gaps, downstream textile market demand support is notably weak. The industry has entered a traditional off-season, with factories lacking new orders. Operating rates in major spinning regions have fallen to 73.1%, and yarn inventories have piled up to 30 days. Enterprises are adopting conservative procurement strategies, only replenishing for immediate needs, with low willingness to hoard. After reserve cotton enters the market, it will be difficult to form strong buying power to absorb the incremental supply in the short term, limiting upside for cotton prices.
From a global fundamental perspective, medium-to-long-term cotton prices still have solid support. The latest USDA supply-demand report estimates 2026/2027 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 the current high domestic-international price spread of 3,010 yuan/ton, fluctuations in international cotton prices will directly transmit to domestic reserve floor prices. A stronger external market will raise release costs, compressing domestic downside.
Market Game and Operational Rhythm
In the short term, when the first round of bidding begins on July 20, spinning mills generally have low raw material inventories. Regular yarn producers have strong replenishment demand and high participation enthusiasm, potentially leading to some premium in early transactions. This just-in-demand buying can temporarily support spot and futures prices. However, as the release progresses, daily supply will accumulate, and the impact of incremental supply will gradually ferment. Near-term contracts face clear upward pressure, and the 16,000 yuan/ton mark will be repeatedly tested.
From a medium-to-long-term perspective, the release can only temporarily supplement short-term circulating supply, unable to change the core logic of global production cuts and domestic high-quality cotton scarcity. As the release nears its end, market focus will shift to Xinjiang cotton growth conditions, new cotton opening prices, and downstream order recovery during the 'golden September and silver October' peak season. Price bottom support remains solid.