The cotton market has just undergone a significant correction in expectations. This week, with the official announcement of the central reserve cotton sales, previously high prices driven by supply tightness began to ease. The main contract for Zhengzhou cotton futures settled at an average of 16,057 yuan per ton, down 148 yuan or 0.9% from the previous week. The national cotton price B index also fell to 17,659 yuan per ton, a drop of 80 yuan. International markets were similarly pressured, with the New York cotton futures main contract averaging 80.37 cents per pound, down 0.1%, while weak US export data and reduced drought areas in major growing regions further dampened bullish sentiment.
The direct trigger for this price decline was the release of reserve cotton. On July 15, China National Cotton Reserves Corporation announced that starting July 20, a portion of central reserve cotton would be sold through open competitive bidding on the National Cotton Trading Market, exclusively for textile mills. The first week's floor price was set at 16,291 yuan per ton, significantly below the current spot market price of 17,659 yuan, meaning mills can directly access cheaper raw materials. For spinning mills, this represents a tangible relief from raw material cost pressures.
Changes in the domestic-import price spread are also noteworthy. This week, the international cotton index (M) averaged 89.32 US cents per pound, translating to an import cost of about 14,762 yuan per ton, up 229 yuan from the previous week. As domestic prices fell while import costs rose, the price gap narrowed by 310 yuan per ton, a decline of 9.7%. A narrower gap means the price advantage of domestic cotton has weakened, making imported cotton more attractive to Chinese mills—a shift that could influence procurement decisions in the coming weeks.
Demand Side: Domestic Recovery Provides a Floor
Despite short-term supply-side pressure, demand-side data is sending positive signals. According to data released by the National Bureau of Statistics on July 15, total retail sales of consumer goods in the first half of 2026 grew 1.3% year-on-year, with June alone up 1.0%, turning positive from negative. More notably, retail sales of clothing, footwear, hats, and textiles by units above designated size grew 6.7% year-on-year, with June growth at 3.9%, significantly outpacing overall retail growth. Consumer resilience in apparel is exceeding expectations, providing a solid foundation for upstream cotton demand.
Textile mills' actual behavior confirms this trend. Industry surveys show that in early July, the average operating rate of spinning mills was 79.7%, up 1.1 percentage points year-on-year. The proportion of mills planning to purchase cotton reached 46.3%, up 9.9 percentage points. Mill purchasing intentions are recovering, coinciding with the timing of the reserve release—low-priced reserve cotton is entering the market just as raw material demand is expanding.
International Market: US Cotton Under Pressure, Brazil Rises
Global cotton supply-demand dynamics are undergoing structural changes. The USDA July supply-demand report shows the 2026/27 global cotton production-consumption gap narrowed by 223,000 tons from June, with ending stocks still high at 15.51 million tons, significantly easing supply tightness. Meanwhile, US cotton export sales and shipments remain weak, with data for the week ending July 9 hitting a seasonal low.
Brazil's strong performance is reshaping the export landscape. According to SECEX data, Brazil exported approximately 80,300 tons of cotton in the second week of July, with daily exports surging 81.5% year-on-year. Record production, price advantages, and improved logistics have solidified Brazil's position as the world's largest cotton exporter, exerting sustained competitive pressure on US cotton. Additionally, the US Trade Representative's plan to impose 25% tariffs on Brazilian goods starting July 22, covering apparel, motors, and other categories, could further weaken US cotton's pricing power.
Weather remains a short-term variable. US cotton is currently in the squaring, flowering, and early boll-setting stages. As of July 12, the national cotton good-to-excellent rate was 44%, down 2 percentage points week-on-week. Persistent high temperatures in key regions like Texas mean the next 2-3 weeks are critical for yield formation. Continued hot, dry weather could further lower yield expectations; conversely, increased rainfall could ease drought conditions and limit weather premiums.