The reserve cotton release policy has been finalized, with the first auction scheduled for July 20. According to the 2026 sales details released by CNCRC, daily listings will be made with no fixed total volume or end date, and the daily offering size will be flexibly adjusted based on market supply and demand. The pricing adopts a dual-anchor mechanism with equal weight for domestic and international cotton spot indices, with the base price adjusted weekly. Based on recent price spreads, the base price is estimated at around 16,216 yuan/ton, offering a clear advantage over current spot prices. Strict entry thresholds are in place, allowing only textile enterprises to participate, and purchased cotton is for self-use only, with resale strictly prohibited. Violators face permanent disqualification. Market expectations suggest the released cotton will be mainly imported, with stable quality but limited high-grade content, leaving the tight supply of high-quality Xinjiang cotton unresolved in the near term.
Supply Gap vs. Off-Season Pressure
The core purpose of this reserve cotton release is to bridge the supply gap during the transition between old and new cotton seasons. Domestic commercial cotton stocks have fallen from a peak of 5.698 million tons at the start of the year to 2.8388 million tons, a drop of more than half. Xinjiang stocks stand at only 1.6712 million tons, with high-grade spot resources tightening. With nearly two months before the new crop hits the market, the market has been facing a risk of temporary supply shortages, and the release can smooth the transition and prevent sharp price volatility. However, downstream textile demand remains weak as the industry enters its traditional off-season. Mills report insufficient new orders, with operating rates in major regions falling to 73.1% and yarn inventories building up to 30 days. Enterprises are purchasing only for immediate needs, with little appetite for stockpiling. The influx of reserve cotton is unlikely to attract strong buying interest in the short term, creating a supply-demand stalemate that will weigh on near-month cotton prices.
Global Crop-Cut Expectations Bolster Floor
Looking at the global fundamentals, medium-to-long-term support for cotton prices remains solid. The latest USDA supply-demand report forecasts 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the global supply-demand balance toward tightness. Xinjiang cotton fields are in a critical growth stage, with persistent high temperatures since July stressing the crop and fueling market expectations of a production decline. Combined with the current high domestic-international cotton price spread of 3,010 yuan/ton, the dual-anchor pricing mechanism means that fluctuations in international cotton prices will directly affect the reserve cotton base price. A stronger ICE market would raise the release cost, further limiting the downside for domestic prices.
Market Battle: Short-Term Pressure vs. Long-Term Support
The bearish impact of the release has already been priced in, with Zheng Cotton weakening ahead of the details. On July 15, the main contract closed at 16,075 yuan/ton, down 45 yuan for the day. In the short term, when the first round of auctions begins on July 20, mills with low raw material inventories will actively bid for regular yarn production, potentially pushing up prices initially. This spot demand could provide a temporary floor for cash and futures prices. However, as the release continues and daily volumes accumulate, the supply pressure will gradually build, capping upside potential and keeping the 16,000 level under repeated test. From a medium-term perspective, the release can only temporarily supplement circulating supply; it cannot change the core logic of a global production decline and domestic high-grade cotton scarcity. Once the release nears its end, market attention will shift to Xinjiang crop conditions, new-crop opening prices, and downstream order recovery during the 'golden September and silver October' season. Price support at the bottom remains strong.