Domestic cotton prices fell after the announcement of reserve cotton sales, while international prices were pressured by weak US export data and easing drought in major producing areas. Zhengzhou cotton futures main contract weekly average fell 0.9% to 16,057 yuan/ton, and the National Cotton Price B Index dropped 0.5%. The domestic-foreign price spread narrowed by 310 yuan/ton week-on-week, indicating a correction trend.
Background: Reserve Sales and Global Supply-Demand Gap Narrowing
The central reserve cotton sales announcement was released on July 15, with auctions starting July 20. The first-week floor price of 16,291 yuan/ton is significantly lower than current spot prices, aiming to ensure supply and curb speculation. Only textile mills are eligible to participate. Meanwhile, the USDA July report reduced the 2026/27 global cotton supply-demand gap by 223,000 tons from June, with ending stocks at 15.51 million tons, easing supply tightness and pressuring international prices.
Industry Impact: Domestic Consumption Resilience vs. External Pressures
Despite price pressure, downstream demand shows resilience. National Bureau of Statistics data shows H1 2026 retail sales of consumer goods up 1.3% YoY, with apparel, footwear, and textile retail sales growing 6.7% YoY, significantly outpacing overall retail growth. This supports upstream cotton consumption. However, external demand remains challenging. US tariff policies continue to escalate, with plans to impose 25% tariffs on thousands of Brazilian goods from July 22, including apparel. Trade friction may weaken the Brazilian real, enhancing Brazil's cotton export competitiveness and further pressuring US cotton.
Industry Impact: Weak US Exports vs. Strong Brazilian Cotton
US cotton export sales and shipments remained weak through early July. Despite a 2-percentage-point drop in good-to-excellent ratings to 44% and 46% of planting areas under drought, market weather premiums have been revised down. Brazil's cotton export momentum is strong, with daily exports in the second week of July up 81.5% YoY, solidifying its position as the world's largest cotton exporter. India's monsoon improvement boosts planting, but uneven rainfall in central regions keeps weather a key variable for new crop output.