On July 20, the 2026 central reserve cotton release will officially begin. According to details from China National Cotton Reserves Corporation, the total volume and end date are not fixed, with daily volumes adjusted flexibly. The base price uses a dual-anchor mechanism equally weighting domestic and international spot indices, currently around 16,216 yuan/ton, offering a clear discount to spot prices. Trading rules have been tightened: only physical textile enterprises can bid, and purchased cotton must be for self-use, with resale strictly prohibited. Violators will permanently lose reserve cotton trading qualifications. This policy directly excludes traders and speculative capital, likely leading to more rational bidding and prices close to the base.
Supply Gap Meets Weak Demand
The core background for the release is the supply gap during the transition between old and new cotton seasons. According to China Customs and industry data, domestic commercial cotton stocks have fallen from 5.698 million tons at the start of the year to 2.838 million tons, a drop of over 50%. Xinjiang stocks are only 1.671 million tons, with high-grade spot resources tightening. With nearly two months until concentrated new-crop arrivals, the reserve release aims to smooth this gap and prevent sharp price fluctuations.
However, downstream textile demand is notably weak. The industry is in its traditional off-season, with mills reporting insufficient new orders. Operating rates in major regions have fallen to 73.1%, and yarn inventories have piled up to 30 days. Mills are only replenishing for immediate needs, with little appetite for active stockpiling. After the new reserve cotton enters the market, it will be difficult to generate strong buying power to absorb the incremental supply in the short term. The pressure from supply increases will gradually weigh on near-term contracts.
Global Production Cuts and Scarce Quality Cotton Underpin Prices
From a medium- to long-term perspective, the price floor logic remains intact despite the release. Xinjiang cotton fields are currently at a critical boll-setting stage, with persistent high temperatures since July intensifying market expectations of a reduced new crop. The latest USDA report projects 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the global supply-demand balance toward tightness.
Meanwhile, the domestic-international cotton price spread remains high at 3,010 yuan/ton. Under the dual-anchor pricing mechanism, international price fluctuations directly transmit to the reserve cotton base price. A stronger external market will simultaneously raise the cost of reserve releases, further limiting downside for domestic prices. The scarcity of high-quality Xinjiang cotton is unlikely to ease soon—the current release primarily consists of imported cotton with stable overall quality but limited high-grade content, unable to meet demand for high-count yarn production. This means high-grade spot cotton will continue to command a premium.
Market Dynamics: Short-Term Pressure, Long-Term Support
On the futures front, the bearish impact of the reserve release was partially priced in earlier. On July 15, the main Zhengzhou Cotton contract closed at 16,075 yuan/ton, down 45 yuan. In the short term, as the first auction round begins on July 20, mills generally hold low raw material inventories. Regular yarn producers have strong replenishment needs and high bidding enthusiasm, potentially driving some premium in early transactions. This demand can provide temporary price support for spot and futures. Combined with Xinjiang's heat-related production concerns, a deep decline seems unlikely.
However, as the release progresses, daily supply will accumulate, and the incremental pressure will increasingly weigh on near-term contracts. The policy ceiling on price upside is clear, and the 16,000 yuan/ton level will face repeated tests. Over the medium to long term, the reserve release can only temporarily supplement short-term circulation; it cannot change the core logic of global production cuts and domestic high-grade cotton scarcity. As the release winds down, market focus will shift to Xinjiang cotton growth, new-crop opening prices, and downstream order recovery during the 'golden September and silver October' peak season. The price floor remains solid.