On July 20, the 2026 central reserve cotton release officially begins, following the sales implementation rules released by China National Cotton Reserves Corporation. With domestic commercial stocks falling to 2.8388 million tons and Xinjiang stocks at only 1.6712 million tons, the policy aims to bridge the supply gap between old and new cotton seasons, preventing sharp price volatility. However, the downstream textile sector is in its traditional off-season, with mill operating rates dropping to 73.1% and yarn inventories piling up to 30 days. The tension between new supply and weak demand makes the 16,000 yuan threshold a focal point for short-term long-short battles.
Policy Mechanism and Market Impact
The release adopts a dual-anchor pricing mechanism, weighting domestic and international cotton spot indices equally, with the floor price adjusted weekly. Based on the current domestic-international price spread of approximately 3,010 yuan per ton, the floor price is estimated at around 16,216 yuan per ton, offering a clear price advantage over spot markets. This design ensures cost control for spindle enterprises while transmitting international price fluctuations to domestic floor prices, compressing downside room. Trading rules strictly limit participation to physical textile enterprises, require self-use only, and ban resale, with violators permanently losing trading qualifications. This eliminates speculative capital, fostering rational bidding. Market expectations suggest the released cotton is mainly imported, with stable quality but limited high-grade content, meaning the tight supply of high-quality Xinjiang cotton will persist in the short term.
Industry Chain Transmission and Supply-Demand Dynamics
The direct effect of the reserve release is to fill the supply gap during the old-new cotton transition. Commercial stocks have declined from 5.6981 million tons at the start of the year to 2.8388 million tons, a drop of over 50%. With nearly two months until the new cotton crop is concentratedly marketed, the market faces a risk of periodic supply tightness, which the policy intervention can smooth. However, downstream demand is weak: mill operating rates have fallen to 73.1%, and yarn inventories have accumulated to 30 days. Enterprises are only restocking for basic needs, with low willingness to stockpile. The new supply is unlikely to see strong buying support in the short term. The market had already priced in the bearish impact of the release. On July 15, Zheng Cotton's main contract closed at 16,075 yuan per ton, down 45 yuan. In the initial auction phase, mills with low raw material inventories will show strong participation, potentially driving some price premiums, which can support spot prices. Meanwhile, Xinjiang cotton fields are in the critical flowering stage, with sustained high temperatures in July pressuring growth, raising expectations of production cuts. This prevents deep declines. However, as the release progresses, accumulated supply will pressure near-term contracts, and the 16,000 yuan level will face repeated tests.
Medium- to Long-Term Support and Global Production Cut Logic
Globally, fundamentals provide solid support for medium- to long-term cotton prices. The latest USDA report shows 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the global supply-demand balance to a tight equilibrium. This production cut expectation, combined with the scarcity of high-quality domestic cotton, forms two pillars for price floors. The reserve release is only a temporary supplement to short-term circulating supply and cannot change the long-term trend of global production cuts. Once the release ends, market focus will shift to Xinjiang cotton growth, new cotton opening prices, and downstream recovery in the 'golden September and silver October' peak season, maintaining solid price support.
For industry chain participants, operational rhythm should flexibly align with the release schedule.
For Buyers - Regular yarn producers should focus on the first auction window, using the price advantage to restock as needed and stabilize raw material costs. - High-end, high-count yarn mills should lock in high-quality Xinjiang cotton as needed to hedge against insufficient high-grade supply. - All participating enterprises must strictly comply with self-use rules to avoid losing trading qualifications.
For Foreign Trade Enterprises - Cotton traders should avoid large-scale stockpiling in the short term, follow orders for flexible procurement, and continuously monitor daily release volumes, transaction rates, and premium levels. If transactions remain subdued, spot prices may decline. - In the medium to long term, consider building positions in high-quality Xinjiang cotton at lower prices to bet on production cut-driven rallies. In futures operations, maintain a short-term bearish oscillation stance; avoid chasing long positions on near-month contracts due to overhead pressure. Far-month contracts benefit from weather and global production cut expectations, with limited downside, so wait for pullbacks to build long positions.
Key observation points include: daily release volumes, transaction heat, and premium levels; temperature and precipitation changes in Xinjiang affecting cotton growth; downstream mill operating rates, yarn inventories, and domestic/export order changes; and the domestic-international price spread and US cotton trends influencing domestic floor prices.