In the third week of July 2026, domestic and international cotton prices weakened in tandem, driven by two forces: China's announcement of reserve cotton sales corrected earlier tight supply expectations, and global supply-demand balance tilted toward easing, with US exports hitting a seasonal low and Brazilian exports surging, capping price upside momentum.
Price Signals: Narrowing Spreads and Clear Cost Pass-Through
From futures to spot markets, the breadth and depth of price declines warrant attention. The Zhengzhou Cotton Futures main contract settled at an average of 16,057 yuan/ton for the week, down 148 yuan/ton (-0.9%). The China Cotton Price B Index, representing inland standard-grade lint, averaged 17,659 yuan/ton, down 0.5%. Internationally, the New York cotton futures main contract averaged 80.37 cents/lb, barely changed, but the International Cotton Index (M) converted to yuan import cost rose to 14,762 yuan/ton, up 1.6%. This divergence narrowed the domestic-international price spread by 310 yuan/ton to 2,897 yuan/ton, a 9.7% drop.
A narrower spread means imported cotton is regaining price competitiveness, directly influencing mills' procurement decisions. With the reserve cotton floor price (16,291 yuan/ton) significantly below current spot prices, downstream mills now have more cost-effective raw material options.
Supply Shifts: Reserve Release and Global Gap Narrows
On July 15, China National Cotton Reserves Corporation announced the auction sale of central reserve cotton starting July 20, exclusively for textile mills. This targeted supply measure directly eases mills' near-term raw material anxiety. Data shows early-July mill operating rates reached 79.7%, up 1.1 percentage points year-on-year, with 46.3% of mills planning to purchase cotton, up 9.9 percentage points. The floor price below spot means mills' actual cotton costs could decline.
Globally, the USDA July report lowered the 2026/27 world cotton production-demand gap by 223,000 tons month-on-month, with ending stocks still high at 15.51 million tons. This easing of supply tightness continues to pressure international prices. Meanwhile, Brazilian cotton exports surged, with daily average exports in the second week of July up 81.5% year-on-year, solidifying its position as the world's top exporter. Brazilian cotton, with record output, price advantages, and improved logistics, continues to erode US market share.
Consumption Resilience: Domestic Retail Rebounds, Exports Face Headwinds
National Bureau of Statistics data on July 15 showed total retail sales of consumer goods in H1 2026 grew 1.3% year-on-year, with June turning positive at 1.0%. More critically, retail sales of garments, footwear, and knitwear by enterprises above a designated size grew 6.7% in H1 and 3.9% in June, significantly outperforming overall retail growth. This suggests domestic consumer resilience in textiles and apparel remains intact.
However, export prospects remain clouded. US tariff policy continues to evolve, with Brazil now targeted for 25% tariffs on garments, motors, and other goods. This could weaken Brazil's exports to the US but may accelerate Brazilian cotton's shift toward China. Additionally, a New York Fed survey shows over 40% of firms plan to pass on tariff costs via price increases, while Middle East tensions push Brent crude above $88/barrel. Energy and tariff factors are jointly fueling global inflation expectations, creating uncertainty for textile export order recovery.
Weather Variables: Critical Window for US and Indian Cotton
US cotton is now in squaring, blooming, and early boll-setting stages. As of July 12, the national cotton good-to-excellent rating was 44%, down 2 percentage points week-on-week. Drought monitoring shows about 46% of US cotton acreage faces some degree of drought. The next 2-3 weeks are critical for yield formation. If hot, dry weather persists, yield expectations may be further downgraded; conversely, rainfall could limit weather premiums. In India, monsoon rains have improved planting progress, but uneven distribution in central regions means July-August weather remains the key variable for new crop output.
Domestically, Xinjiang's growing conditions are generally favorable, though sustained high temperatures in the coming week need monitoring. In Hunan and Hebei, cotton growth is stable, with Hebei plants bearing over 10 bolls mainly on lower branches. However, entering the dog days, middle and top boll numbers may be limited. Overall, weather risks in major producing regions are not yet resolved but have not formed a shock sufficient to reverse the supply-demand balance.
Near-Term Outlook: Range-Bound Trading Most Likely
In summary, the reserve cotton release will increase domestic supply in stages, with the first-week floor price of 16,291 yuan/ton significantly below spot, likely suppressing prices in the short term. However, recovering domestic consumption, higher mill operating rates year-on-year, and increased buying interest provide a floor. Cotton prices are likely to remain range-bound, awaiting further clarity on weather, policy, and external demand.