The core driving factors for the sustained rise in cotton this year

The current upward trend in cotton prices is driven by the resonance of six major logics: rigid domestic supply contraction, global El Niño production cut expectations, downstream demand recovery, cost and policy support, external market linkage, and weak low inventory buffers. This is a medium- to long-term trend rise driven by tight supply and demand, not short-term speculation.

1. Domestic Supply Side: Mandatory Reduction of Xinjiang Planting Area (Core Bullish Factor)

1. Water resource policies force a reduction in cotton planting scale
Xinjiang has launched a three-year water-saving and cotton-control plan, with 2026 as the key implementation year, aiming to reduce cotton fields from 43 million mu to 36 million mu. Newly reclaimed cotton areas in southern Xinjiang will have water supply cut off and planting subsidies canceled. The national cotton planting area will decline by 4%–7% year-on-year, Xinjiang production is estimated to decrease by 6%–7% year-on-year, and the annual domestic raw material gap will widen to 1.6–1.7 million tons.

2. Risk of production reduction for new cotton growth
In 2026, Xinjiang’s seedling stage encountered low temperatures and strong winds, with cotton plant development generally lagging 2–5 days behind previous years. The flowering and boll-setting stage coincides with El Niño, where high temperatures and drought can easily cause bud and boll shedding, reduced yield per unit area, and a decline in the proportion of high-quality cotton (dual 29). The market continues to price in expectations of reduced yield per unit area.

3. Existing inventories continue to decline rapidly
The commercial inventory consumption rate of last year’s old cotton is significantly faster than in previous years. Xinjiang spot market weekly destocking is high, and the buffer inventory before the new cotton market is continuously declining. The spot basis continues to strengthen, supporting the futures price.

2. Global Supply: El Niño Disrupts Multiple Major Producing Regions, Global Production Falls Short of Demand

1. Moderate-to-strong El Niño spans the critical growth period of cotton
El Niño in 2026 will persist into the second half of the year, simultaneously impacting the world’s four largest cotton-producing countries:

- India: Monsoon delays, insufficient rainfall, cotton field drought, with average yields generally declining by more than 10%;
- Texas, USA: Although planting area increased, persistent drought in the production area continues to lower cotton quality ratings;
- Australia: Irrigation water source controls combined with high temperatures make production cuts this year a foregone conclusion. Australian cotton is an important import source for China, and the basis for US dollar cotton on the external market has risen;
- Brazil: Harvest progress is slow, and drought affects later production expectations.

2. The USDA supply and demand report clearly indicates a widening global gap
Global cotton production for the 26/27 season is 25.27 million tons, consumption 26.51 million tons, with a supply-demand gap of 1.24 million tons, the highest in five years; global ending inventories continue to decline, with the inventory-to-consumption ratio falling to a four-year low, leaving extremely limited buffer space.

3. International export resources are exhausted ahead of schedule
Export progress for US, Brazilian, and Australian cotton in the 25/26 season has exceeded 77%. Spot market supply in the first half of the year is tight, import cotton costs rise, which in turn pulls up domestic cotton prices.

3. Demand Side: Textile Capacity Expansion + Marginal Recovery in Domestic and Foreign Orders

1. Concentrated commissioning of textile capacity in Xinjiang, sharply increasing rigid cotton demand
In recent years, a large amount of spinning and weaving capacity has been established in Xinjiang, locally consuming Xinjiang cotton. Domestic demand rigidity continues to rise, offsetting the traditional off-season weakness in inland areas, and annual cotton consumption is steadily increasing.

2. Recovery in overseas clothing consumption and export orders
US apparel retail sales continue to post positive year-on-year growth; tariffs on some Chinese textiles have been reduced by the US, lowering export costs. Pre-season orders for autumn and winter clothing have been placed ahead of schedule; India has relaxed import tariffs on cotton, and textile mills worldwide are simultaneously replenishing inventories, boosting overall cotton consumption expectations.

3. High chemical fiber costs highlight the substitution advantage of cotton
Crude oil, polyester, and staple fiber prices remain high, improving the cost-effectiveness of cotton-textile fabrics. Downstream companies are actively increasing orders for pure cotton and high-count yarn, further boosting the rigid demand for cotton.

4. Policy Support: Target Price Provides a Floor, Long-Term Support for Price Center

Xinjiang’s target cotton price for 2026–2028 is locked at 18,600 yuan per ton, forming a clear price floor. The market’s downside is capped by policy; subsidies are biased toward high-quality cotton, promoting a continued widening of premiums for high-grade cotton, and the overall cotton price center shifts upward.

The supporting sliding-scale quota for import cotton has been slightly increased, and the quota application process has been simplified, improving the flexibility of corporate procurement. However, it cannot fully fill the raw material gap caused by the large-scale domestic reduction, only slightly easing the upward price pressure.

5. Cost Side: Rigid Increases Across the Entire Chain Support Seed Cotton and Ginned Cotton Quotes

1. Planting costs: Plastic film, fertilizer, pesticides, artificial labor for Xinjiang cotton picking, and irrigation electricity costs are all up year-on-year;
2. Distribution costs: Road and rail freight rates have increased, and processing and storage capital costs for ginning mills have risen;
Combined cost increases lead to strong farmer reluctance to sell, making seed cotton quotes prone to rises rather than falls, which is transmitted upward to ginned cotton futures and spot markets.

6. External Market Linkage and Capital Expectations Amplify the Upward Trend

1. US and Australian cotton continue to strengthen due to weather-induced production cuts. The price spread between domestic and foreign markets is linked, and rising import costs drive Zhengzhou Cotton Futures to follow the uptrend;
2. Under the overall inflationary expectations for commodities, industrial and speculative funds continue to buy cotton futures on dips, amplifying price volatility;
3. Green supply chain standards are becoming stricter, reducing the circulation of compliant high-quality cotton, and premiums for high-grade cotton continue to rise.

Short-Term Suppressing Factors (Limit Unilateral Surge but Do Not Change the Major Bullish Logic)

1. Expectations of national reserve cotton releases, which can be injected into the market when prices rise too quickly;
2. Traditional domestic textile off-season, limiting the ability of downstream players to absorb high raw material prices;
3. US cotton planting area exceeds expectations; if rainfall improves later, it could temporarily suppress external market gains.