Cotton prices experienced a notable correction this week (July 13-17) after earlier gains. The average settlement price of Zhengzhou Cotton Futures main contract was 16,057 yuan/ton, down 148 yuan/ton week-on-week, a decline of 0.9%. The National Cotton Price B Index averaged 17,659 yuan/ton, down 80 yuan/ton. The market shift was triggered by the official announcement of the central reserve cotton auction.
Reserve Cotton Release: Targeted Supply and Price Anchoring
On July 15, China National Cotton Reserves Corporation announced the sale of some central reserve cotton through open competitive bidding via the National Cotton Trading Market starting July 20, limited to textile enterprises. This arrangement is clearly aimed at precise supply assurance, relieving phased tightness while curbing speculation. The initial week's floor price is set at 16,291 yuan/ton, significantly below the current domestic spot price of 17,659 yuan/ton, implying at least 1,000 yuan/ton cost reduction potential for mills.
From an industry logic perspective, the reserve release not only increases market supply but also creates a clear price anchor. Mills had been forced to accept high prices due to supply tightness; after the release, their bargaining power will recover. In early July, mill operating rates averaged 79.7%, up 1.1 percentage points year-on-year, with 46.3% of enterprises planning to purchase cotton, up 9.9 percentage points. This indicates substantial downstream demand, but high prices had suppressed purchasing. The reserve cotton entry may activate this pent-up demand.
External Headwinds: Weak US Exports and Strong Brazil Competition
Internationally, US cotton export data hit a yearly low, with sales and shipments still weak as of July 9. Meanwhile, drought area in main production zones decreased, with about 46% of US cotton areas facing drought as of July 14, easing earlier concerns. The market quickly corrected weather premium expectations. New York Cotton Futures main contract averaged 80.37 cents/lb, down slightly.
More notably, Brazilian cotton continues its strong surge. SECEX data shows Brazil exported about 80,300 tons in the second week of July, with daily exports of about 10,000 tons, up 81.5% year-on-year. With record production, price advantages, and improved logistics, Brazil has become the world's largest cotton exporter. Additionally, the US Trade Representative plans to impose 25% tariffs on Brazilian goods from July 22, covering apparel, motors, etc., which may further weaken the Brazilian real and enhance Brazil's price competitiveness, putting dual pressure on US cotton.
Domestic Consumption Resilience Supports Textile Chain
Despite uncertain external demand due to tariff policies, domestic consumption data sent positive signals. National Bureau of Statistics data on July 15 showed retail sales of consumer goods in H1 2026 grew 1.3% year-on-year, while retail sales of apparel, footwear, and textiles by units above designated size grew 6.7%, with June single-month growth of 3.9%, significantly outpacing overall retail. This indicates strong consumer apparel resilience, providing a foundation for downstream textile demand.
However, macroeconomic inflation concerns cannot be ignored. A New York Fed survey shows over 40% of companies plan to continue passing tariff costs through price increases. Combined with Middle East tensions pushing Brent crude above $88/barrel, energy and tariff factors are jointly driving global inflation expectations, providing medium-term support for commodity prices but potentially squeezing textile enterprise profit margins.
Supply-Demand Gap Narrows, but Weather Variables Remain
The USDA July report showed the 2026/27 global cotton supply-demand gap narrowed by 223,000 tons from June, with ending stocks at 1.551 million tons, still relatively high. The easing of tightness puts pressure on international prices. However, weather variables persist: US cotton is in squaring, flowering, and early boll setting stages, with good-to-excellent ratings at 44%, down 2 percentage points. Texas and other main areas face sustained high temperatures, with the next 2-3 weeks critical for yield formation. In India, monsoon rains have improved but are unevenly distributed; July-August weather remains a core variable for new crop output. Domestically, Xinjiang has generally favorable light and heat, but sustained high temperatures need monitoring.