Driven by strong policy expectations of "acreage reduction," domestic cotton prices have experienced a significant rally over the past two months, with January's market reaching a phase high, hitting a new peak in nearly a year and a half. According to the commodity market analysis system of Business Society, as of January 30, the spot price of 3128B-grade lint cotton was 16,197 yuan/ton, up 4.16% from the beginning of the month. In the futures market, as of January 30, the settlement price of the main Zhengzhou cotton futures contract was 14,770 yuan/ton, an increase of 0.48% from the beginning of the month.

Analysis of Core Drivers of the Rally

This round of cotton futures price increases is the result of multiple factors converging, including supply-demand dynamics, costs, and market expectations. Additionally, expectations of reduced planting acreage in the upcoming year, among other factors, have bolstered market optimism about future prospects.

• Strong Policy Expectations: The policy expectation of reducing Xinjiang cotton planting acreage by 2026 is the core driver of this market rally. According to information from Xinjiang cotton enterprises and relevant departments, the target planting area for Xinjiang cotton in the 2026/27 season has been clearly set at 36 million mu, a significant reduction of 5-7 million mu compared to the actual scale in 2025, representing a compression of over 10%. This marks the most substantial adjustment to Xinjiang cotton planting scale in recent years.
• Pre-Holiday Restocking Demand Downstream: Although terminal consumption recovery has been gradual, the approach of the Spring Festival has led to some rigid restocking demand from textile enterprises, providing a temporary boost to cotton prices. Data from the National Cotton Market Monitoring System shows that as of January 22, 2026, the national sales rate of new cotton was 62.7%, a year-on-year increase of 24.1 percentage points and 28.2 percentage points higher than the average of the past four years.

Constraints on Cotton Price Increases

• Ample Supply: As Xinjiang cotton processing nears completion, pressure from the supply side is gradually becoming more apparent. As of January 29, 2025, the national cotton notarized inspection volume for the 2025 season was 7.2298 million tons.
• Widening Domestic-Foreign Cotton Price Gap: The sharp rise in domestic cotton prices has caused the domestic-foreign price differential to expand to a historically high level (approximately 3,200 yuan/ton), making imported cotton yarn highly price-competitive and severely suppressing demand for domestic cotton.
• Impeded Transmission Along the Industrial Chain: Recently, the cotton market has shown a divergent pattern of "hot upstream, cold downstream." Despite strong cotton price trends, downstream demand remains persistently weak, making it difficult for high-priced raw materials to be smoothly passed through to the yarn and grey fabric segments. As the Spring Festival approaches, coastal garment, printing/dyeing, and weaving enterprises are successively reducing production and closing for the holiday. Purchasing of yarn and fabric has gradually weakened since late January, dampening cotton mills' willingness to restock raw materials.
• Weak Downstream Demand: Currently, yarn mill operating rates are generally stable. Spinning mills are primarily fulfilling previous orders, with new order intake declining. Reduced logistics capacity and shrinking downstream inventory preparation have led to an overall market slowdown. Although yarn mill profit margins remain squeezed, inventory pressure for yarn is not yet pronounced and has not exerted significant negative feedback pressure upstream.

International Cotton Prices Range-Bound

In January, the main ICE cotton futures contract exhibited a clear range-bound pattern, constrained by macroeconomic sentiment and downstream demand, with significant resistance at higher levels. Since January, ICE cotton has fluctuated between 63-65 cents. With demand showing no significant recovery, cotton prices are expected to remain in a pattern of consolidation and bottom-building.

The USDA's January cotton supply and demand forecast report lowered global production by 76,200 tons, increased consumption by 65,300 tons, and reduced the global cotton ending stocks for the 2025/26 season by 326,600 tons. The most notable change in this report is the downward revision of global production, signaling a turning point in the global supply expansion cycle. While this provides strong support for the market, the slow recovery on the demand side, with the main increment stemming from China's upward revision of consumption by 109,000 tons, and persistently weak global terminal textile consumption, are limiting the upside for cotton prices.

Summary and Outlook

The current reality of ample supply is in contention with changes in downstream demand. Expectations of the 2026 planting acreage adjustment cycle provide a floor, but with the Spring Festival approaching and downstream restocking demand slowing, cotton prices may transition into a consolidation phase after hitting a new phase high before the holiday. Attention should be paid to when specific details and the implementation extent of policies like the Xinjiang acreage reduction will be clarified, as well as the actual order and profit recovery situation in the downstream textile industry after the holiday.