Reserve Cotton Release Looms, Prices Face Short-Term Pressure but Consumption Resilience Offers Floor

China's cotton market is entering a critical policy window. On July 15, the central reserve cotton auction notice was officially released, with sales starting July 20 through the national cotton trading market, restricted to textile mills. The first-week floor price of 16,291 yuan/ton is over 1,300 yuan below current spot prices, offering mills a temporary low-cost replenishment opportunity. This policy signal quickly transmitted to futures, with Zhengzhou cotton futures main contract weekly average settling at 16,057 yuan/ton, down 0.9% week-on-week.

Short-Term Supply Pressure, Narrowing Spread

The reserve release aims to precisely ensure supply and curb speculation. Earlier market concerns about tight supply eased as mill purchasing intentions rose to 46.3%, up nearly 10 percentage points year-on-year, while operating rates reached 79.7%. The announcement directly improved supply expectations, pushing domestic prices lower.

Internationally, bearish signals also emerged. US cotton export sales hit a seasonal low, and while 46% of US cotton acreage remains under drought, recent rainfall expectations prompted the market to correct optimistic pricing of weather premiums. ICE cotton main contract averaged 80.37 cents/lb, down 0.1%. Notably, the international cotton index M rose 1.6% due to currency and logistics cost fluctuations, narrowing the domestic-international spread by 310 yuan/ton, or 9.7%.

Global Deficit Narrows, Brazilian Exports Surge

The USDA July report confirmed a loosening global supply-demand balance. The 2026/27 global cotton deficit narrowed by 223,000 tons from June, with ending stocks at 155.1 million tons. Brazilian cotton exports averaged 10,000 tons per day in the second week of July, surging 81.5% year-on-year, cementing Brazil's position as the world's top cotton exporter. This directly pressures US cotton prices and ICE pricing power.

Domestic Consumption Offers Floor, External Risks Remain

Despite supply-side pressure, domestic consumption shows resilience. June retail sales of garments, footwear, and textiles grew 3.9% year-on-year, outperforming overall retail growth of 1.0%. However, external demand remains clouded by US tariff policies and global inflation risks. Export order recovery requires further observation and will cap any price rebound.

Practical Recommendations

For Buyers - Prioritize reserve auction in the first week; floor price offers significant discount. - Monitor narrowing domestic-international spread; consider increasing import purchases if advantage widens. - Weather in US cotton belt over next 2-3 weeks is critical; adopt phased procurement to manage price volatility.

For Textile Mills - With input costs eased by reserve release, consider raising operating rates to meet domestic peak season demand. - Track Brazilian export pace and US sales data; if Brazilian supply continues surging, consider forward import contracts. - For export orders, adopt short-term contracts to mitigate tariff policy risks.