The announcement of the reserve cotton release has rapidly cooled the market's previous expectations of tight domestic supply. The central reserve cotton auction, starting July 20, with a first-week floor price of 16,291 yuan/ton—significantly below current spot market prices—aims to precisely ensure supply and curb speculation. This policy signal directly suppressed the upside potential for cotton prices, but the market is more concerned about whether the release volume, pace, and the supply gap before the new crop arrival can be effectively filled.
Price Trends and Narrowing Spread
Domestic cotton prices fell this week. Zhengzhou Cotton Futures main contract averaged 16,057 yuan/ton, down 0.9% week-on-week; the National Cotton Price B Index averaged 17,659 yuan/ton, down 0.5%. Internationally, ICE cotton main contract averaged 80.37 cents/lb, down 0.1%, but the International Cotton Index (M) in yuan terms rose 1.6% to 14,762 yuan/ton, narrowing the domestic-international price spread by 310 yuan/ton, a 9.7% decline.
This narrowing indicates that domestic prices are more suppressed by the reserve release expectation, while imported cotton prices are relatively supported by strong Brazilian exports and weak U.S. exports. For textile mills, the cost advantage of imported cotton is diminishing, making it crucial to monitor the spot-reserve price gap.
Global Supply-Demand: Deficit Shrinks, Brazil Exports Surge
The USDA July report showed the 2026/27 global cotton deficit narrowed by 223,000 tons from June, with ending stocks at 1.551 million tons—still high, easing tightness. U.S. cotton export sales hit a seasonal low, while Brazilian exports remained strong: daily exports in the second week of July reached 10,000 tons, up 81.5% year-on-year, solidifying Brazil's position as the world's top exporter.
U.S. cotton faces weather pressure. As of July 12, the national cotton good-to-excellent rate was 44%, down 2 percentage points. Persistent heat in Texas and other key growing areas makes the next 2-3 weeks critical for yield formation. Worsening drought could support a weather premium; rain could cap prices. In India, monsoon rains have boosted planting, but uneven distribution in central regions keeps weather a variable through July-August.
Domestic Supply-Demand: Reserve Release Targets Mills, Procurement Intent Rises
Domestic cotton growth is generally stable, with favorable light and heat in Xinjiang but risks from ongoing high temperatures. In Hunan and Hebei, growth is normal, but mid-season heat may limit boll numbers. Textile mill operating rates averaged 79.7% in early July, up 1.1 percentage point year-on-year; 46.3% of mills plan to purchase cotton, up 9.9 points. The reserve release is timely, with the floor price below spot, likely attracting significant mill participation.
Notably, the auction is restricted to textile mills, preventing speculation and ensuring direct supply to end-users. In the short term, the release will boost supply and cap prices, but if the volume is insufficient or demand surprises on the upside, downside may be limited.
Macro and Trade Environment: Tariff Policies Stoke Global Inflation
U.S. tariff policies continue to roil markets. After the Supreme Court ruled some tariffs illegal, the Treasury paid $49.2 billion in refunds in June, widening the monthly deficit to $120 billion. The U.S. is pushing forward with new tariffs, planning 25% duties on thousands of Brazilian goods from July 22, including apparel and electronics. Trade friction could weaken the Brazilian real, boosting its cotton export competitiveness and pressuring U.S. cotton prices.
Domestically, June retail sales grew 1.0% year-on-year, turning positive, with apparel, footwear, and textile sales up 3.9%, outpacing the overall growth. Consumption resilience supports the textile chain, but external demand remains affected by trade policies, and export order recovery needs monitoring. Brent crude above $88/bbl, combined with tariffs, is fueling global inflation expectations, indirectly raising costs for cotton growers and textile mills.
Outlook: Range-Bound Trading, Focus on Weather and Policy Pace
In the near term, the reserve release will suppress domestic prices, and the domestic-international spread may narrow further. Weak U.S. exports and strong Brazilian exports are unlikely to reverse quickly, limiting upside for global cotton prices. However, weather risks (U.S. drought, India's uneven rains) and macro policies (U.S. tariffs, domestic stimulus) add uncertainty.
Over the next 1-2 weeks, prices are expected to trade in a range: Zhengzhou cotton futures likely between 15,800-16,200 yuan/ton, ICE cotton between 78-82 cents/lb. Textile enterprises should closely monitor reserve auction results, U.S. weather developments, and Brazilian export pace to adjust procurement strategies flexibly.