Global cotton ending stocks fell to 15.19 million tons, down 11.1 million tons year-on-year—this is the key figure from the USDA August supply-demand report. The inventory contraction is driven by a cut in U.S. cotton yields to 798 pounds per acre, with production down about 20,000 tons from last month, while global consumption growth outpaces production gains. This marginal change in stock data is reshaping the pricing anchor for both domestic and international cotton prices.
The Supply-Demand Logic Behind the Data
The USDA report raised U.S. harvested acreage, but the sharp cut in yields offset the acreage gains. The U.S. cotton condition rating fell to 40% as of August 9, far below the 53% of the same period last year, with persistent drought in the key Texas growing area pressuring cotton at the critical boll-setting stage. Meanwhile, India's cotton sowing is largely complete, but rainfall in major growing regions is expected to remain below normal over the next two weeks, leaving growth disturbances unresolved. Northern hemisphere weather premiums are replacing inventory drawdowns as the core support for international cotton prices.
The strength of international cotton prices is more directly reflected on the trading floor. The New York cotton futures main contract settled at an average of 84.19 cents per pound for the week, with an intraday high of 85.25 cents—the highest since May 14. But more noteworthy is the change in the domestic-international price spread: the international cotton index M, representing imported cotton cost, converted to 15,382 yuan per ton at Chinese main ports, while the domestic cotton price B index stood at 17,889 yuan per ton, widening the spread to 2,507 yuan per ton, an increase of 46 yuan from the previous week. This means the premium of domestic cotton over international cotton is expanding, making imported cotton more cost-competitive.
Structural Divergence in the Domestic Market
The rise in domestic cotton prices is more attributable to contract switching that shifted the pricing center. The Zheng cotton main contract moved from September to January, and market trading logic shifted to new-crop supply-demand expectations, with the weekly average settlement price rising 2.3% to 16,336 yuan per ton. However, support from the spot market is not solid: reserve cotton continues to be listed for sale, with cumulative transactions reaching 160,300 tons as of August 14, maintaining a 100% transaction rate, and the pressure of supplementary supply remains. Downstream, spinning mills' operating rate recovered to 80.6%, and yarn sales ratios improved month-on-month, but fabric sales ratios declined, indicating overall weak terminal orders, with only sporadic feedback from Hubei, Anhui, and Guangdong about autumn/winter orders gradually landing.
This divergence is also reflected in textile raw material trends. Domestic C32S combed yarn averaged 23,452 yuan per ton, up only 0.3% for the week, while the same specification yarn from major importing countries averaged 23,344 yuan per ton, up 0.9%—imported yarn gained more than domestic yarn, with regular imported yarn now 108 yuan per ton cheaper than domestic yarn. This means the rise in international cotton prices is transmitting to the domestic market through imported yarn channels, but domestic cotton yarn is struggling to follow, squeezing spinning mills' profit margins. Polyester staple fiber prices also rose 66 yuan per ton to 7,534 yuan per ton, and the substitution effect of chemical fibers may re-emerge when cotton prices are high.
Macro and Policy Double Support
The macro environment is mildly supportive for the cotton market. U.S. CPI rose 3.4% year-on-year in July, and PPI rose 4.7%, with inflation pressures continuing to ease. Combined with the July non-farm payroll decline of 23,000 and retail sales falling 0.6% month-on-month, market expectations for further Fed rate hikes have cooled. Domestically, July CPI rose 0.5% year-on-year, and the central bank's Q2 monetary policy report reaffirmed a moderately loose policy stance, with ample liquidity supporting financing conditions for the industrial chain. However, geopolitical risks cannot be ignored: the deadline for Hormuz Strait navigation negotiations is approaching, and if tensions escalate, they could cause episodic disruptions to commodity risk appetite.
Outlook and Operational Tips
In summary, northern hemisphere weather disturbances and global inventory cuts provide support for cotton prices, but the support will gradually weaken as new-crop production becomes clearer. Domestic downstream demand has not yet recovered broadly, and reserve cotton continues to supplement supply, so international cotton prices are expected to remain firm with fluctuations, while domestic prices are likely to consolidate. For industry chain participants, the current price spread structure presents both risks and opportunities.