On July 14, China National Cotton Reserves officially released the 2026 reserve cotton sales rules, with the new round of release starting July 20. Daily listings will be made with no fixed total or end date, and the volume will be adjusted flexibly according to market conditions. The policy aims to fill the supply gap during the transition between old and new cotton seasons.
Domestic cotton commercial stocks have dropped to 2.8388 million tons from a peak of 5.6981 million tons at the beginning of the year, a decline of over half. Xinjiang region stocks are only 1.6712 million tons, with high-grade spot resources tightening. With nearly two months before the new cotton crop comes to market, there is a risk of supply shortage. The core purpose of the reserve release is to smooth this transition period and prevent sharp price fluctuations.
A Game of Weak Supply and Demand
The downstream textile market currently lacks strong support. The industry is in its traditional off-season, with factory orders insufficient. Spinning mill operating rates in major regions have fallen to 73.1%, and yarn inventory has accumulated to 30 days. Mills are only purchasing for immediate needs, with little appetite for stockpiling. This means that new reserve cotton entering the market will not face strong buying demand in the short term.
From a pricing perspective, the release uses a dual-anchor mechanism, weighting domestic and international cotton spot indices equally at 50% each. The floor price is adjusted weekly. Based on recent domestic-international price spreads, the floor price for this round is about 16,216 yuan/ton, offering a clear price advantage over current spot market prices. This is attractive for mills with real demand, but strict entry requirements allow only physical textile enterprises to participate, and purchased cotton must be for self-use only, with no resale allowed. Traders and speculative funds are shut out, ensuring more rational bidding.
Global Production Decline Provides Support
Looking at the global fundamentals, medium- to long-term cotton prices still have solid support. The latest USDA supply-demand report projects 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year. The global supply-demand balance is shifting toward a tight equilibrium, providing underlying support for forward prices.
The current domestic-international cotton price spread remains high at 3,010 yuan/ton. Under the dual-anchor pricing mechanism, fluctuations in international cotton prices will directly affect the floor price of domestic reserve releases. A stronger international market will push up the cost of reserve cotton, further limiting downside risks for domestic prices.
Xinjiang cotton fields are in the critical boll development stage, with sustained high temperatures since July putting pressure on cotton growth. Market expectations for a new-season production decline are rising. This fundamental factor, combined with global production decline expectations, forms important support for the medium- to long-term price floor.
Short-Term Pressure, Long-Term Logic Unchanged
The negative impact of the reserve release has already been priced in by the market. Before the rules were announced, Zhengzhou cotton futures had already weakened. On July 15, the main contract closed at 16,075 yuan/ton, down 45 yuan. In the short term, when the first round of bidding opens on July 20, mills with low raw material inventory will participate actively, especially those producing regular yarns. Initial bidding may see some premium, providing support for spot and futures prices. Combined with the high-temperature production decline expectations in Xinjiang, a deep price drop is unlikely.
However, as the release continues, daily supply will accumulate, and the impact of increased supply will gradually take effect. The pressure from volume will weigh on near-month contracts, limiting upside potential. The 16,000 yuan/ton mark will be tested repeatedly.
From a medium- to long-term perspective, the reserve release can only temporarily supplement short-term supply; it cannot change the core logic of global production decline and domestic high-quality cotton scarcity. As the release winds down, market focus will shift to Xinjiang cotton growth, new-season opening prices, and the recovery of downstream orders during the golden September and silver October season. Price support remains solid.
Key Tracking Points Ahead
Market focus will center on four areas: first, daily release volume, bidding activity, and premium levels, reflecting real demand from mills; second, temperature and rainfall changes in Xinjiang cotton regions, assessing boll development and production decline; third, downstream weaving mill operating rates, yarn inventory, and domestic and export order changes, tracking demand recovery; fourth, the domestic-international price spread and US cotton trends, understanding the linkage effect on domestic reserve floor prices.