On July 20, the 2026 reserve cotton release by China National Cotton Reserves will officially commence. This timing coincides with the transition between old and new cotton seasons, declining domestic commercial stocks, and the traditional off-season for downstream textiles. The daily release volume is not fixed but will be flexibly adjusted based on market supply-demand dynamics, signaling a clear intention to stabilize prices.
Domestic commercial cotton inventories have dropped 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 stocks alone stand at 1.6712 million tons, with high-grade spot resources becoming increasingly scarce. With nearly two months until the new crop is fully harvested, the reserve release aims to smooth this supply gap and prevent sharp price fluctuations.
Supply-Demand Fundamentals: Short-Term Pressure, Medium-Term Support
On the demand side, the downstream textile sector has entered the traditional off-season, with weak support. Operating rates in major spinning regions have fallen to 73.1%, yarn inventories have built up to 30 days, and new orders are insufficient. Mills are purchasing only for immediate needs, with little appetite for active stockpiling. This means that once reserve cotton enters the market, it will be difficult to generate strong buying interest to absorb the incremental supply in the short term.
However, global fundamentals provide solid support for medium-term cotton prices. The latest USDA supply-demand report projects 2026/27 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the global balance toward a tight equilibrium. Meanwhile, Xinjiang cotton fields are in the critical boll-setting stage, and persistent high temperatures since July have intensified market expectations of a production cut for the new season.
Trading Rule Optimization: Curbing Speculation, Promoting Rational Bidding
This round of reserve cotton release features targeted adjustments in trading rules. The pricing mechanism adopts a dual-anchor system, weighting domestic and international cotton spot indices equally, with the base price adjusted weekly. Based on recent domestic-international price spreads, the base price is estimated at approximately 16,216 yuan/ton, offering a clear price advantage over current spot market levels and attracting sufficient interest from mills with genuine demand.
More importantly, strict eligibility criteria are in place: only physical textile enterprises can participate in bidding, and the acquired reserve cotton must be used for self-consumption only, with resale strictly prohibited. Violations will result in permanent disqualification from reserve cotton trading. This measure effectively blocks traders and speculative capital, fostering a more rational bidding atmosphere. Market consensus expects transaction prices to hover close to the base price.
It is worth noting that the released cotton is expected to be primarily imported, with stable overall quality but a limited share of high-grade grades, insufficient for high-count yarn production. This means the tight supply of high-quality Xinjiang cotton is unlikely to ease in the short term, and mills specializing in high-count yarns will still need to secure quality Xinjiang spot supplies as needed.
Price Battle: Repeated Tests at 16,000 Yuan/ton
In the futures market, the bearish impact of the release had already been priced in. Zhengzhou cotton futures had weakened last week, closing at 16,075 yuan/ton on July 15, down 45 yuan. In the near term, when the first round of bidding begins on July 20, mills with low raw material inventories and strong replenishment needs for regular yarns are expected to participate actively, potentially driving some premium in initial transactions. This demand could provide a temporary floor for spot and futures prices.
However, as the release progresses, the cumulative supply will exert increasing pressure on near-month contracts, capping upside potential. The 16,000 yuan/ton level will be tested repeatedly. From a medium-term perspective, the reserve release can only temporarily supplement short-term supply; it cannot alter the core logic of global production cuts and domestic high-quality cotton scarcity. Once the release nears its end, market focus will shift to Xinjiang cotton growth, new crop opening prices, and the recovery of downstream orders during the peak season, with the price floor remaining robust.