This week witnessed a notable price correction in both domestic and international cotton markets, driven by three converging bearish factors: China's official announcement of reserve cotton release, US cotton export data hitting a seasonal low, and easing drought conditions in key US growing regions. The previously built-up expectation of tight supply was quickly revised. On the Zhengzhou Cotton Futures exchange, the average settlement price for the主力 contract fell 0.9% week-on-week to 16,057 yuan/ton, while the China Cotton Price Index B also dropped 0.5%. Internationally, although the New York futures主力 contract edged down only 0.1%, the landed cost of the international cotton index M in China rose 1.6% in yuan terms, narrowing the domestic-international price spread by about 310 yuan/ton, a 9.7% decline.
Supply-Demand Dynamics: Reserve Release Precisely Offsets Mill Demand
On July 15, China National Cotton Reserves Corporation announced the start of competitive auction sales of state reserve cotton starting July 20, exclusively for textile mills. The first week's floor price was set at 16,291 yuan/ton, significantly below the current inland spot price of 17,659 yuan/ton, signaling a clear policy intent to ensure supply and curb speculation. This move directly alleviates the phase supply tightness caused by slower import arrivals and the pre-harvest season. Downstream data shows mill operating rates in early July reached 79.7%, up 1.1 percentage points year-on-year, while 46.3% of mills planned to purchase cotton, a nearly 10-percentage-point increase, indicating strong restocking demand that the reserve release is timely addressing.
External Pressures: Weak US Exports and Brazil's Rise
The US cotton market faces dual headwinds. Export sales and shipments for the week ending July 9 both hit new lows for the marketing year, reflecting weak global buying interest. Meanwhile, Brazilian cotton exports surged, with average daily exports in the second week of July jumping 81.5% year-on-year, solidifying its position as the world's top cotton exporter. Benefiting from record production, competitive pricing, and improved logistics, Brazil continues to erode US market share. Additionally, the US Trade Representative plans to impose 25% tariffs on thousands of Brazilian goods starting July 22, including apparel, which could further dampen global trade confidence and potentially boost Brazil's export competitiveness via a weaker real.
Macro Variables: Consumption Resilience Offsets Inflation Concerns
Domestic macro data offers crucial support for the textile industry. China's National Bureau of Statistics reported that total retail sales of consumer goods in the first half of 2026 grew 1.3% year-on-year, with June turning positive at 1.0%. More notably, retail sales of apparel, footwear, and knitwear by units above designated size rose 6.7% in H1 and 3.9% in June, significantly outpacing overall retail growth. This indicates resilient consumer spending on clothing, helping to absorb upstream cost fluctuations. However, global inflation expectations are rising—a New York Fed survey shows over 40% of firms plan to pass on tariff costs via price increases, and Brent crude has breached $88/barrel. The combination of energy and tariff factors is fueling global inflation, which could constrain the recovery of textile export orders.
Weather and Inventories: Short-Term Volatility, Medium-Term Range
The USDA July supply-demand report narrowed the 2026/27 global cotton production-consumption deficit by 223,000 tons from June, with ending stocks of 15.51 million tons remaining relatively high. In the US, key growing regions like Texas are experiencing persistent heat, with about 46% of the cotton area under drought as of July 14. The next 2-3 weeks are critical for yield formation. If hot, dry weather persists, yield expectations could be revised down; conversely, rainfall would cap weather premiums. Domestically, Xinjiang's cotton areas have favorable conditions but face potential heat stress next week. Inland regions like Hebei and Hunan show uneven growth, with high temperatures in the伏 period potentially limiting boll numbers. Overall, supply uncertainty from weather exists, but the reserve release and high global inventories create a price ceiling, suggesting cotton prices will likely trade in a range.