The announcement of reserve cotton release has weighed on domestic and international cotton prices, but the pace and magnitude of declines diverged. The Zhengzhou Cotton Futures主力 contract averaged 16,057 yuan/ton for the week, down 0.9% from the previous week; the NY cotton futures主力 averaged 80.37 cents/lb, a mere 0.1% decline. However, when factoring in exchange rates and tariffs, the yuan-denominated cost of imported cotton actually rose 1.6%, narrowing the domestic-international price gap to 2,897 yuan/ton, a reduction of nearly 10% week-on-week. This shift in the price structure directly influences mill procurement strategies, as the narrowing advantage of imported cotton means the cost-saving space previously available through foreign cotton is shrinking, potentially turning mills' attention to the upcoming reserve release.
Reserve Cotton Release: Balancing Supply and Market Expectations
On July 15, China National Cotton Reserves Corporation formally announced the auction sale of central reserve cotton starting July 20, exclusively for textile mills. The first week's floor price of 16,291 yuan/ton is 1,368 yuan/ton below the同期 National Cotton Price B Index of 17,659 yuan/ton, a significant discount. This move signals policy intent to alleviate temporary supply tightness while curbing speculation. Early July surveys showed 46.3% of mills planning to purchase cotton, up 9.9 percentage points year-on-year; mill operating rates stood at 79.7%, up 1.1 percentage points. Demand-side recovery precedes the reserve release, making the timing appropriate.
Global Cotton Market: US Cotton Under Pressure, Brazil Rises
The weakness in international cotton prices is multifaceted. The USDA July WASDE report reduced the 2026/27 global cotton production-consumption deficit by 223,000 tons from June, with ending stocks remaining high at 15.51 million tons. This eased supply tightness directly capped ICE cotton’s upside. More critically, export dynamics are shifting. US cotton export sales and shipments hit season lows for the week ending July 9, while Brazilian cotton exports surged—daily average exports in the second week of July jumped 81.5% year-on-year. Brazil, with record production, price advantages, and improved logistics, has secured its position as the world’s largest cotton exporter, persistently pressuring US cotton. Additionally, the U.S. Trade Representative 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 and pressuring US prices.
Consumption: Domestic Resilience, External Uncertainty
Domestic consumption data provide underlying support. The National Bureau of Statistics reported on July 15 that 2026 H1 retail sales of consumer goods rose 1.3% year-on-year, while sales of apparel, footwear, hats, and textiles by units above designated size grew 6.7%, significantly outpacing overall retail growth. June single-month sales of this category grew 3.9%, turning positive from negative in the previous month, showing sustained consumer resilience in apparel. However, external demand faces uncertainty. The U.S. tariff policy continues to adjust, with a New York Fed survey showing over 40% of firms planning to pass tariff costs through price increases. Coupled with Middle East tensions pushing Brent crude above $88/barrel, global inflation expectations are rising. This weighs on textile and apparel export order recovery, requiring mills to maintain flexibility in raw material procurement.
Key Weather Window: Uncertainty in Major Producing Regions
Northern Hemisphere cotton regions are entering critical yield-formation periods. In the U.S., as of July 12, the national cotton crop condition rated good to excellent was 44%, down 2 percentage points from the previous week, with 46% of planting areas experiencing drought. Persistent high temperatures in Texas and other key areas mean the next 2-3 weeks are crucial for yield expectations—continued heat could lead to further downgrades, while rain could alleviate stress and cap weather premiums. In India, improved monsoon rains have boosted planting progress, but uneven distribution in central zones means July-August weather remains the core variable for new crop output. In Xinjiang, most cotton is in the flowering and boll-setting stage with generally favorable light and heat, but sustained high temperatures need monitoring for effects on boll weight. Cotton in Hunan and Hebei is growing steadily; Hebei plants have over 10 bolls, but summer heat may limit top boll development.
Near-Term Outlook: Range-Bound Trading, Watch Policy and Weather
In summary, reserve cotton release will effectively increase domestic supply, with the first-week floor price significantly below spot levels, likely dampening prices in the short term. However, the clear trend of domestic consumption recovery, rising mill operating rates and purchasing intentions, and ongoing macroeconomic policy support limit downside potential. Internationally, weak US exports and strong Brazilian shipments are unlikely to change soon, with high global ending stocks capping upside. But risks from US drought, Sino-US trade policy shifts, and Indian weather variability could trigger periodic rebounds. Cotton prices are likely to trade in a range, with the core fluctuation zone for Zhengzhou Cotton Futures at 15,800-16,500 yuan/ton.