The pace of old-crop cotton inventory liquidation has become the most critical indicator for the cotton market ahead of the new harvest. As of Aug 19, combined warehouse receipts and valid warrants stood at approximately 402,300 tons, up 25.8% year-on-year, yet the average daily outflow over the past week was only about 50 lots, significantly slower than last year. This signals not a lack of supply, but a structural concentration of supply and a pricing standoff.
Background
The slowdown in warrant outflow is not accidental. Geographically, current warrants are dominated by high-premium cotton from Kashgar, Hotan, Kizilsu, and Gansu, which tend to have high sugar content and average spinability, limiting their appeal to mills producing high-count yarns. Meanwhile, the share of premium-quality cotton from northern Xinjiang is low, reducing the demand-side match. At the same time, central reserve sales and early issuance of sliding-scale quota have provided mills with alternative supplies, reducing reliance on warrants.
Another key variable is price. Since mid-August, the main CF2701 contract has reclaimed 17,000 and 17,100 yuan/ton, lifting warrant quotes, but mills' willingness to accept has not kept pace. The tension between rising prices and weak demand elasticity has directly suppressed intermediate traders' enthusiasm. For buyers, current levels are not an attractive replenishment window; they prefer to wait for price revaluation after the new crop arrives.
Notably, the new harvest is arriving earlier. Hand-picked cotton in southern Xinjiang is already being collected, with full-scale purchasing expected from late August to early September. Machine-picked cotton will see defoliant spraying and seed cotton delivery 5-7 days earlier than last year. This compresses the window for liquidating old-crop warrants while bringing forward new supply pressure.
Industry Impact
The slowdown in warrant outflow reflects a transitional pricing battle before the new crop takes over. For ginners, the current warrant pool's high share of high-premium but low-spinnability cotton poses a risk of forced cancellation before November's mandatory deadline. This forces more flexible pricing strategies, potentially including discounts to accelerate destocking.
For textile mills, prudent procurement is advised in the short term. Reserve cotton and quotas provide stable substitutes, reducing the need to chase high warrant prices. Moreover, earlier new-crop arrival implies more ample supply ahead, with potential downside price risk. Thus, a wait-and-see approach until new crop prices clarify is prudent.
From a macro perspective, the 25.8% year-on-year increase in warrants reflects a relatively loose supply picture for 2025/26. But structural issues are acute: scarcity of high-quality cotton coexists with surplus of low-quality. This will directly influence seed cotton pricing for the new season, widening premiums for northern Xinjiang premium cotton while southern Xinjiang high-sugar cotton faces persistent sales pressure.