On July 20, the 2026 central reserve cotton release will officially begin. The China National Cotton Reserves Corporation released sales implementation rules on July 14, with daily listings on each legal working day. The total volume and end date remain undetermined, with daily scale adjusted flexibly based on market conditions. This policy means the supply gap during the transition between old and new cotton seasons will be temporarily filled, but the deep contradictions upstream and downstream in the industry have not been resolved.
Supply-Demand Weakness and the Logic of Release
Current domestic cotton commercial stocks have fallen from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a decline of over 50%. Xinjiang production area stocks are only 1.6712 million tons, with high-grade spot resources tightening. With nearly two months until the new cotton crop is concentrated on the market, the risk of periodic supply shortages has been looming. The reserve release aims to smooth this transition gap and avoid sharp fluctuations in raw material prices.
However, downstream textile market demand support is not optimistic. The industry has entered the traditional off-season, with factories facing insufficient new orders. Operating rates in mainstream textile regions have fallen to 73.1%, and yarn inventories have piled up to 30 days. Companies are only maintaining just-in-time replenishment, with little willingness to stockpile. This means that as new reserve cotton enters the market, it will be difficult to form strong buying power to absorb the incremental supply in the short term.
Refined Policy Regulation and Market Impact
The trading rules for this release reflect a combination of price stabilization and market-oriented pricing. The pricing mechanism uses a dual-anchor system with equal weight for domestic and foreign cotton spot indices, with the floor price adjusted weekly. Based on recent domestic-foreign cotton price spreads, the floor price for this round is about 16,216 yuan/ton, offering a clear price advantage over current market spots, attractive enough for just-in-need spinning mills.
More critical is the entry threshold: only physical textile enterprises are allowed to participate in bidding, and the reserve cotton purchased is limited to self-use, with resale strictly prohibited. Violators face permanent disqualification from reserve cotton trading, directly blocking traders and speculative funds from entering the market. Market consensus expects the released cotton to be mainly imported, with stable overall quality but limited high-grade content, unable to meet high-count yarn production needs. This means the tight supply of high-quality Xinjiang cotton will not ease in the short term.
Global Production Cut Expectations and Medium-to-Long-Term Support
From a global perspective, medium-to-long-term cotton prices still have solid support. The latest USDA supply-demand report shows 2026/2027 global cotton production is expected at 25.53 million tons, down 3.8% year-on-year, pushing the global cotton supply-demand balance toward a tight equilibrium. Combined with the current high domestic-foreign cotton price spread of 3,010 yuan/ton, under the dual-anchor pricing mechanism, international price fluctuations will directly transmit to domestic reserve floor prices. A stronger foreign market will simultaneously raise the cost of the release, further compressing the downside for domestic prices.
Domestically, Xinjiang cotton fields are in the critical boll development stage, with persistent high temperatures in July pressuring cotton growth. Market expectations for a new-season production cut are rising. The reserve release can only temporarily supplement short-term circulating supply; it cannot change the core logic of global production cuts and domestic high-quality cotton scarcity.
Market Game and Short-Term Direction
On the futures front, the bearish impact of the release was already priced in. On July 15, the main Zheng cotton contract closed at 16,075 yuan/ton, down 45 yuan for the day. In the short term, when the first round of bidding starts on July 20, mills generally have low raw material inventories. Conventional yarn producers have strong replenishment demand and high participation enthusiasm, so early transactions may see some premium. Just-in-need transactions can temporarily support spot and futures prices. Combined with high-temperature-induced production cut expectations, deep declines are unlikely.
However, as the release continues, daily supply accumulation will gradually exert pressure. The supply overhang will continue to pressure near-month contracts, with policy clearly capping upside space. The 16,000 mark will be repeatedly tested. From a medium-to-long-term perspective, 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-October peak season. The price bottom remains solid.
Practical Recommendations
For Buyers - Conventional yarn mills should focus on the first round of bidding, using the price advantage of reserve cotton for just-in-need replenishment to smooth raw material costs. - Mills specializing in high-count and high-end yarns still need to lock in high-quality Xinjiang spot on demand to hedge against high-grade supply shortages. - All participating enterprises must strictly adhere to self-use rules to avoid disqualification from trading rights due to resale violations.
For Foreign Trade Companies - Avoid large-scale stockpiling in the short term; follow orders for flexible purchasing and sales, and continuously track daily release volumes, transaction rates, and premium levels. - If market transactions remain sluggish, spot prices may correct, offering a chance to wait for lower cost windows. - In the medium to long term, selectively accumulate high-quality Xinjiang cotton to bet on production cut-driven price opportunities.
Key observation points going forward include: daily reserve listing volumes and transaction heat; temperature and precipitation changes in Xinjiang cotton regions; downstream mill operating rates and domestic/international order trends; and domestic-foreign cotton price spreads and US cotton trends. The first round of bidding data on July 20 will be a key short-term market indicator.