When global inventory cycles and weather variables simultaneously point to tighter supply, the pricing logic for cotton is shifting from 'weak demand' to 'supply premium.' In mid-August, domestic and international cotton prices strengthened in tandem, with the New York futures contract touching 85.25 cents per pound, the highest since May 14. Domestically, Zheng cotton futures rose to 16,336 yuan per ton after contract rollover to the new crop year. However, the sustainability of this rally is questionable—domestic downstream orders have not shown substantial improvement, and continued reserve sales are offsetting production cut expectations.
Supply Side: Three Factors Converge to Lift Price Center
The tightening on the supply side is not a single event but a confluence of three factors. First, the USDA August report cut U.S. cotton yield to 798 pounds per acre, reducing production by about 20,000 tons from last month, while global ending stocks were lowered by 330,000 tons month-on-month to 15.19 million tons, down 1.11 million tons year-on-year. This reinforced market expectations of tighter global supply. Second, weather in major northern hemisphere production areas remains abnormal: U.S. cotton good-to-excellent ratings fell to 40%, down from 53% a year ago, with Texas drought unlikely to ease soon. In Xinjiang, high temperatures and drought in July-August may advance boll opening, with some mills in southern Xinjiang planning to start purchasing around late August. Third, India's sowing is complete, but rainfall forecasts for the next two weeks are below normal, posing growth risks.
These factors have allowed international cotton prices to rise despite lackluster demand. Notably, southern hemisphere supply is supplementing the market—Brazil's harvest is 28.4% complete, and Australia's June exports nearly tripled month-on-month. This suggests that the supply tightening is not an absolute shortage but a regional mismatch. If northern hemisphere weather improves or southern hemisphere shipments accelerate, price support could quickly fade.
Demand Side: Weak Domestic, Stable External, Spread Widening Reveals Structural Contradiction
In contrast to strong supply, demand is characterized by 'weak domestic, stable external.' Domestically, July CPI rose only 0.5% year-on-year, with core CPI up 0.9%, indicating continued consumer weakness. The textile market shows sporadic recovery—spinning mill operating rates rose to 80.6%, and yarn sales ratios improved month-on-month, but fabric sales ratios declined, and overall terminal orders remain weak. Imported yarn prices rose 0.9% versus 0.3% for domestic yarn, making imported yarn 108 yuan per ton cheaper than domestic, enhancing its competitiveness.
The domestic-international cotton price spread widened to 2,507 yuan per ton, up 46 yuan from the previous week—a figure worth attention for buyers. A wider spread means domestic cotton becomes less cost-effective relative to imports, potentially prompting textile mills to increase foreign cotton purchases, which could pressure domestic prices. Meanwhile, reserve sales continue with a 100% transaction rate, with cumulative listings reaching 160,000 tons, supplementing market supply and reflecting some enterprises' demand for bargain restocking.
Macro-wise, U.S. July CPI at 3.4% and PPI at 4.7% indicate easing inflation, reducing expectations of further rate hikes. Domestically, the central bank maintains a moderately loose monetary policy, which is favorable for industry financing. However, geopolitical risks (Strait of Hormuz situation) and commodity volatility remain significant variables.
Price Outlook: Short-Term Firm, But Upside Limited by Demand
Overall, cotton prices remain supported by supply expectations in the short term, but upward momentum is waning. The USDA report's positive impact is partially digested, and as new crop output becomes clearer, the weather premium may fade. Domestically, Xinjiang production cut expectations and reserve sales are in a tug-of-war, with Zheng cotton likely to fluctuate in the 16,000-17,000 yuan per ton range. Internationally, attention should be on U.S. cotton export data—new crop weekly net sales reached 205,000 tons, up 273% week-on-week, but sustainability remains to be seen.
For industry chain enterprises, the current price level is not a time for one-way chasing. The supply story is largely told, and demand recovery is not yet confirmed. It is advisable to use hedging to lock in profits and avoid excessive speculation.