Supply-side dynamics shifted this week as China's central reserve cotton release announcement cooled earlier fears of tight supply, driving domestic prices lower. The Zhengzhou cotton futures main contract averaged 16,057 yuan/ton, down 0.9% from the previous week, while the National Cotton Price B Index fell 0.5% to 17,659 yuan/ton. On the international front, weak US export data—hitting a season low—and reduced drought in key growing areas weighed on sentiment. The NY cotton futures main contract edged down 0.1%, and the domestic-international price spread narrowed by 310 yuan/ton, or 9.7%, further eroding the competitiveness of imported cotton.
Market Background
The reserve release, announced on July 15 and starting July 20, is exclusively open to textile mills through competitive bidding on the National Cotton Trading Market. The first-week floor price of 16,291 yuan/ton is significantly below current spot prices, directly addressing mill demand. In early July, mill operating rates stood at 79.7%, up 1.1 percentage points year-on-year, and 46.3% of mills planned to purchase cotton, up 9.9 percentage points. The release will effectively ease short-term supply gaps and curb spot price spikes.
Global supply-demand dynamics are also shifting. The USDA July report narrowed the 2026/27 global cotton deficit by 223,000 tons from June, with ending stocks at 15.51 million tons—a relatively high level. US export sales remain weak, while Brazilian cotton continues to surge, with daily exports in the second week of July soaring 81.5% year-on-year, cementing Brazil's position as the world's top exporter. Meanwhile, the US 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 cotton export competitiveness and pressuring US prices.
Industry Impact
Domestic consumption resilience is providing a floor for the textile chain. According to the National Bureau of Statistics, total retail sales of consumer goods in the first half of 2026 grew 1.3% year-on-year, but sales of apparel, footwear, and knitwear by enterprises above designated size surged 6.7%, with June alone up 3.9%—significantly outpacing overall retail growth. Consumer spending on apparel continues to support downstream demand. However, external demand remains uncertain: US tariff policies continue to disrupt global trade, and a New York Fed survey shows over 40% of firms plan to pass on costs via price hikes. Combined with Middle East tensions pushing Brent crude above $88/barrel, energy and tariff factors are jointly fueling global inflation expectations, making export recovery a wait-and-see.
Weather premiums and the reserve release are competing forces. US cotton is in a critical yield-formation window over the next 2-3 weeks, with persistent heat in Texas. If dry conditions continue, yield expectations could be revised down; conversely, rain would ease the drought premium. Indian cotton sowing is progressing with uneven monsoon rains, and July-August weather remains key. Domestically, Xinjiang's cotton is generally in good condition, but sustained high temperatures need monitoring; Hebei's boll counts are high but upper-middle bolls may be limited. Overall, the reserve release will cap short-term prices, but consumption resilience and weather uncertainties provide a floor, likely keeping prices in a range-bound pattern.