Domestic cotton prices fell immediately after the announcement of reserve cotton release, with Zhengzhou cotton futures main contract weekly average dropping to 16,057 yuan/ton, down 0.9% from the previous week. Meanwhile, the National Cotton Price B Index averaged 17,659 yuan/ton, a 0.5% decline. However, international cotton prices showed divergence—NY futures barely moved, while the International Cotton Index (M) converted import cost rose 1.6% to 14,762 yuan/ton, narrowing the domestic-foreign price gap by 310 yuan/ton (9.7%). This contrast indicates that the domestic market is more sensitive to supply-side policy changes, while the international market is still digesting mixed signals from record-low U.S. export data and easing drought in major producing areas.
Price Transmission and Supply-Demand Gap
The downward pressure on domestic cotton prices directly stems from precise policy intervention. On July 15, the reserve cotton sales announcement was released, with bidding starting July 20 exclusively for textile enterprises, and the first-week floor price of 16,291 yuan/ton significantly below spot market levels. This pricing strategy aims to ease temporary supply tightness and curb speculation, but also means short-term procurement costs for mills may drop. However, from the textile side, mill operating rates in early July rose 1.1 percentage points year-on-year to 79.7%, and the share of enterprises planning to purchase cotton increased 9.9 percentage points, indicating resilient downstream demand that may limit further price declines.
The global supply-demand landscape is undergoing structural adjustments. The USDA July report narrowed the 2026/27 global cotton production-consumption gap by 223,000 tons from June, with ending stocks still high at 15.51 million tons. On the supply side, Brazilian cotton exports continue to surge—daily average exports in the second week of July soared 81.5% year-on-year. Leveraging record output, price advantages, and improved logistics, Brazil has firmly secured its position as the world's largest cotton exporter, exerting sustained competitive pressure on U.S. cotton. Meanwhile, U.S. cotton export sales and shipments remain weak, and while the main Texas region faces high temperatures and drought, 46% of planting areas under drought have eased compared to earlier, risking a correction in weather premiums.
Trade Policy and Macro Variables
The ripple effects of U.S. tariff policy are reshaping global cotton trade flows. After the Supreme Court ruled some tariffs illegal, the Treasury paid about $49.2 billion in tariff refunds in June, but the U.S. is pushing ahead with a new tariff framework—imposing 25% tariffs on thousands of Brazilian goods from July 22, covering apparel, motors, and other categories. This move may weaken the Brazilian real, further enhancing Brazil's cotton export competitiveness and adding pressure on U.S. cotton prices. Meanwhile, a New York Fed survey shows over 40% of firms plan to pass on tariff costs through price increases. Combined with Middle East tensions pushing Brent crude above $88/barrel, both energy and tariff factors are jointly driving up global inflation expectations, raising the pricing floor for the cotton textile chain.
Domestic consumption shows positive signals. In the first half of the year, total retail sales of consumer goods grew 1.3% year-on-year, with June's single-month growth turning positive at 1.0%. Retail sales of garments, footwear, hats, and textiles by units above designated size grew 6.7% year-on-year, and 3.9% in June, significantly outperforming overall retail sales. The resilience of apparel consumption provides a bottom-line support for cotton demand, but external demand still faces uncertainties in the international trade environment, and export order recovery requires further observation.