The 2026 reserve cotton release policy was finalized on July 14, with sales starting every working day from July 20. The total volume and end date remain unspecified, and daily volumes will adjust flexibly based on market conditions. This move comes during the industry's off-season and the transition between old and new cotton years, drawing widespread attention as Zhengzhou cotton futures hover around the 16,000 yuan/ton mark, balancing short-term pressure and medium-term support.
Policy Details and Market Expectations
The release adopts a dual-anchor pricing mechanism, weighting domestic and international cotton spot indices at 50% each, with weekly dynamic adjustments. Based on recent price spreads, the initial floor price is approximately 16,216 yuan/ton, offering a clear advantage over current spot prices and attracting cost-sensitive spinning mills. Trading rules are tightened: only physical textile enterprises can participate, and purchased cotton must be self-used, with resale strictly prohibited. Violators face permanent disqualification. This effectively excludes traders and speculative capital, leading to more rational bidding and prices likely close to the floor.
Market consensus expects the released cotton to be primarily imported, with stable quality but limited high-grade content, failing to meet high-count yarn production needs. This means the shortage of high-quality Xinjiang cotton will persist, supporting prices for premium grades.
Supply-Demand Dynamics: Short-Term Pressure vs. Long-Term Support
The core rationale for the release is declining domestic commercial stocks. Public data shows stocks fell from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a drop of over half; Xinjiang stocks are only 1.6712 million tons, with high-grade supplies tightening. With nearly two months until the new cotton harvest, the release smooths the transition, preventing sharp price volatility.
However, downstream demand is weak. The industry is in a traditional off-season, with new orders insufficient. Mill operating rates in major regions have fallen to 73.1%, and yarn inventories have piled up to 30 days. Mills are only restocking for immediate needs, with little appetite for hoarding. The influx of reserve cotton may struggle to find strong buying support in the short term.
Globally, medium-term price support remains solid. Xinjiang cotton fields are in the critical boll development stage, with persistent high temperatures since July pressuring growth, fueling expectations of a new-crop production drop. The latest USDA supply-demand report projects 2026/27 global cotton output at 25.53 million tons, down 3.8% year-on-year, shifting the global balance toward tightness. Coupled with a current domestic-international price spread of 3,010 yuan/ton, the dual-anchor mechanism means international price fluctuations directly affect the reserve floor price. A stronger international market would raise release costs, further limiting domestic downside.
Market Dynamics and Key Variables Ahead
The bearish impact of the release was already priced in, with Zhengzhou cotton weakening before the policy details. On July 15, the main contract closed at 16,075 yuan/ton, down 45 yuan. Initially, spinning mills with low inventories and strong demand for standard yarn will actively bid, potentially driving some premium in early auctions, providing temporary price support. Combined with Xinjiang heat-related production concerns, a sharp decline is unlikely.
But as releases continue, cumulative supply pressure will weigh on near-term contracts, capping upside potential. The 16,000 yuan/ton level will be repeatedly tested. In the medium term, the release only supplements short-term supply; it cannot change the core logic of global production cuts and domestic high-quality cotton scarcity. As the release winds down, market focus will shift to Xinjiang crop conditions, new-crop opening prices, and the recovery of peak-season demand in September-October, keeping the price floor solid.