The central reserve cotton release starting July 20, with a first-week floor price of 16,291 yuan/ton—about 1,368 yuan below the spot market—directly caps the recent price rally driven by tight supply. Zhengzhou cotton futures averaged 16,057 yuan/ton for the week, down 0.9% week-on-week, while the National Cotton Price B Index fell 0.5%. This clearly signals the policy intent to precisely ensure supply and curb speculation.
Supply-Demand: Global deficit narrows, Brazilian cotton pressures US market share
The USDA July report cut the 2026/27 global cotton production-consumption deficit by 223,000 tons from June, with ending stocks remaining high at 15.51 million tons, significantly easing supply tightness. Meanwhile, Brazilian cotton exports surged—daily average shipments in the second week of July jumped 81.5% year-on-year—cementing Brazil's position as the world's largest cotton exporter and persistently pressuring US cotton. US cotton export sales hit a seasonal low, and while 46% of the Texas growing area faces drought, the good-to-excellent crop rating only fell 2 percentage points to 44%, leaving weather premiums for the next 2-3 weeks uncertain.
In India, improved monsoon rainfall has boosted planting progress, but uneven distribution in central regions means July-August weather remains key for new crop output. In China's Xinjiang region, conditions are generally favorable, though sustained high temperatures could impact the boll-setting stage; crops in Hebei and Hunan are growing steadily, but mid-summer heat may limit top boll numbers.
Policy & Trade: Tariff frictions reshape global cotton trade flows
After the Supreme Court ruled some tariffs illegal, the US Treasury paid approximately $49.2 billion in tariff refunds in June, widening the monthly deficit to $120 billion. However, the US is pressing ahead with new tariff frameworks, planning to impose 25% tariffs on thousands of Brazilian goods from July 22, including apparel, motors, and paper. This could further weaken the Brazilian real, paradoxically boosting Brazilian cotton export competitiveness and indirectly pressuring US cotton. A New York Fed survey shows over 40% of firms plan to pass tariff costs through price hikes, while Middle East tensions have pushed Brent crude above $88/barrel, fueling global inflation expectations.
Domestically, China's macro picture shows resilience. H1 retail sales grew 1.3% year-on-year, with apparel, footwear, and textile sales at above-designated-size units surging 6.7%. Mill operating rates reached 79.7%, up 1.1 percentage points year-on-year, and the share of mills planning to purchase cotton rose to 46.3%, indicating solid domestic demand support.
Price Outlook: Range-bound trading likely to persist
The reserve cotton floor price at 16,291 yuan/ton, roughly 8% below spot, will pressure Zhengzhou futures and spot prices in the near term. However, the policy restricts bidding to textile mills, aiming for precise supply rather than price suppression. Externally, weak US export sales and Brazilian competition form dual headwinds, but Texas drought risks and global inflation expectations may provide a floor. Over the next 1-2 months, domestic and international cotton prices are likely to trade in ranges: Zhengzhou futures between 15,500-16,500 yuan/ton, and ICE cotton around 78-82 cents/lb.