At 16,057 yuan per ton, the average settlement price for Zhengzhou Cotton Futures' main contract last week marked a 0.9% decline from the previous week. This seemingly modest drop reflects the convergence of three forces: the imminent release of reserve cotton, weak US export data, and shifting global supply-demand dynamics.
Reserve Cotton Release: A Price Anchor Under Precision Supply
On July 15, China National Cotton Reserves Corporation officially announced a central reserve cotton sales program, starting July 20 through open竞价 on the National Cotton Trading Market, limited to textile mills. The first week's floor price of 16,291 yuan/ton is significantly below the current domestic standard-grade cotton market average of 17,659 yuan/ton. For mills, this represents direct cost savings; for the market, it signals a clear price ceiling.
Historically, reserve cotton releases act as a stabilizer during tight supply periods. Domestic cotton growth is generally stable, but persistent high temperatures in parts of Xinjiang and uncertain boll counts in Hunan and Hebei create supply risks. The reserve release fills the gap between crop years. Notably, mill operating rates reached 79.7% in early July, up 1.1 percentage points year-on-year, while the share of mills planning to purchase cotton rose to 46.3%, up 9.9 percentage points. Demand remains intact; only price expectations have adjusted under the reserve's guidance.
Global Supply-Demand Gap Narrows; US Cotton Faces Dual Pressure
The USDA's July report reduced the 2026/27 global cotton production-consumption gap by 223,000 tons from June, with ending stocks at 15.51 million tons—still relatively high. Easing supply tightness directly caps international price upside.
US cotton faces a more complex situation. While the crop condition rating fell 2 percentage points to 44% as of July 12, with persistent heat in Texas, export sales hit a season low. Meanwhile, Brazilian cotton exports surged—daily average in the second week of July jumped 81.5% year-on-year, cementing Brazil's position as the world's top exporter. With record production, price advantages, and improved logistics, Brazil is steadily eroding US market share.
Adding to the pressure, the USTR plans to impose 25% tariffs on thousands of Brazilian goods from July 22, including apparel and machinery. This could weaken the Brazilian real, further boosting Brazil's cotton export competitiveness.
Domestic Resilience; External Uncertainty Lingers
National Bureau of Statistics data shows total retail sales of consumer goods in H1 2026 grew 1.3% year-on-year, but sales of garments, footwear, and textiles by units above designated size surged 6.7%, significantly outperforming the broader figure. In June alone, this category grew 3.9% year-on-year, turning positive from the previous month. This indicates a solidifying recovery in domestic textile and apparel consumption, providing substantive support for upstream cotton demand.
However, external headwinds persist. US tariff policies continue to evolve; a New York Fed survey found over 40% of firms plan to pass on tariff costs via price increases. Geopolitical tensions in the Middle East have pushed Brent crude above $88/barrel, combining energy and tariff factors to fuel global inflation expectations. These external variables will directly impact the pace and profitability of export order recovery.
Short-Term Range-Bound; Key Variables in Weather and Policy
In summary, the reserve cotton release sets a near-term ceiling for domestic prices, but the floor is equally solid—supported by recovering domestic consumption, restocking demand, and weather uncertainties in Xinjiang and US growing regions. Over the next month, cotton prices are expected to trade in a range: 15,800-16,500 yuan/ton for Zhengzhou futures and 78-83 cents/lb for New York futures.