Starting July 20, China's central reserve cotton is being auctioned via the National Cotton Trading Market, exclusively for textile mills. The first-week base price of 16,291 yuan/ton is about 1,368 yuan below the current inland standard-grade lint cotton spot price, offering mills a significant cost-saving opportunity of over 1,300 yuan per ton if they secure the reserve cotton.
Reserve Cotton Release: A Price Anchor Under Precise Supply Management
On July 15, China National Cotton Reserves Corporation announced the sale, aiming to ensure precise supply and curb speculation. The timing coincides with the transition from the traditional slack season to autumn/winter order preparation, when mill raw material inventories are generally low. Earlier concerns about temporary supply tightness have been directly addressed by the reserve release.
Domestic cotton prices fell this week. Zhengzhou Cotton Futures main contract averaged 16,057 yuan/ton, down 148 yuan/ton week-on-week (-0.9%). The China Cotton Price B Index averaged 17,659 yuan/ton, down 80 yuan/ton. The reserve base price effectively sets a short-term ceiling for spot prices during the release period.
Global Supply-Demand: Narrowing Deficit and Surging Brazilian Exports
The USDA July report narrowed the 2026/27 global cotton production-consumption deficit by 223,000 tons month-on-month, with ending stocks of 15.51 million tons still elevated. This eased supply tightness and pressured international prices. NY futures main contract averaged 80.37 cents/lb, down 0.1%.
Brazilian cotton exports remain the most noteworthy trend. SECEX data shows daily exports in the second week of July surged 81.5% year-on-year, with full-year exports likely hitting a new record. Thanks to record production, price competitiveness, and improved logistics, Brazil is now the world's largest cotton exporter, consistently challenging US cotton. US export sales remain weak, hitting a seasonal low in the week ending July 9.
US cotton-growing areas saw some drought relief, but 46% of acreage still faces varying drought levels. The next 2-3 weeks are critical for yield formation during the squaring and flowering stages. In India, improved monsoon rains have boosted sowing progress, though uneven distribution in central regions remains a risk for the July-August period.
Tariffs and Inflation: Hidden Pressure on External Demand
The USTR plans to impose 25% tariffs on thousands of Brazilian goods from July 22, including apparel, motors, and paper. This could weaken the Brazilian real, further boosting Brazilian cotton's export competitiveness against US cotton. Meanwhile, the New York Fed survey shows over 40% of firms plan to pass tariff costs through price increases, adding to global inflation expectations. Brent crude has broken above $88/barrel, with energy and tariffs jointly fueling inflation.
Domestic consumption shows resilience. National Bureau of Statistics data shows H1 2026 retail sales of consumer goods grew 1.3% year-on-year, with apparel, footwear, and textiles sales above designated size up 6.7%, significantly outpacing overall retail growth. June textile sales alone grew 3.9% year-on-year, turning positive from negative in May. Consumer spending on apparel continues to support the textile chain.
Industry Impact: Mill Operating Rates Up, Procurement Intentions Strengthen
According to the National Cotton Market Monitoring System, mill operating rates averaged 79.7% in early July, up 1.1 percentage points year-on-year. The proportion of mills planning to purchase cotton reached 46.3%, up 9.9 percentage points. Despite external demand pressure, domestic orders still support production. The reserve release coincides with mill restocking needs, and auction activity is expected to be brisk.
Domestic cotton growth is generally stable. Xinjiang has favorable light and heat conditions, with limited impact from local high temperatures. Fields in Hunan and Hebei are developing normally, but attention is needed on potential high-temperature effects on mid-plant boll counts during the dog days.