Entering early July, domestic cotton prices have remained steady-to-firm despite the traditional demand off-season. The strength is primarily attributed to uncertainties surrounding new-crop production as cotton enter the critical flowering-to-boll-setting growth stage in China's Xinjiang, coupled with positive signals from Sino-U.S. agricultural trade negotiations that have bolstered textile chain export expectations. Combined with fundamental support from a tight global cotton supply-demand balance and continued destocking of domestic old-crop cotton inventories, price volatility is expected to widen in July, with a clear bullish bias emerging in the market.
Currently, cotton across Xinjiang has largely entered the critical bud-to-early flowering and boll-setting stage, which is decisive for final yields and highly sensitive to temperature and moisture conditions.
According to a joint warning from the Xinjiang Meteorological Bureau and the Department of Agriculture and Rural Affairs, a widespread heatwave is expected to hit the region again on July 11-12, ushering in a second round of persistent extreme heat across the region.
Maximum temperatures in the Southern Xinjiang Basin and the entire Eastern Xinjiang region are forecast to return to above 40°C, with localized areas in Turpan and Hami potentially reaching 45°C+. In Northern Xinjiang plains, including eastern Bortala, southern Tacheng, Shihezi, and Changji, maximum temperatures could reach 39-41°C, re-elevating heat damage risks for major cotton production areas to a high level.
The adverse effects of heat stress on new-crop cotton continue to manifest. The optimal growing temperature for cotton during the flowering-boll stage is 28-30°C. When temperatures persistently exceed 33°C, damage symptoms begin to appear; above 35°C, severe heat damage occurs, leading to pollen inactivation, increased shedding of flowers and bolls, reduced boll-setting rates, and ultimately constraining yields.
Concurrently, prolonged high temperatures and drought accelerate the proliferation of pests and diseases in cotton fields, raising the risk of infestation spread and further compromising cotton plant growth, posing both yield and quality risks for the new crop.
On the other hand, recent Sino-U.S. trade negotiations have yielded phased positive results, bringing favorable expectations for the exports of the cotton industrial chain and adjusting previous pessimistic sentiment regarding weak market demand. On July 2, the Ministry of Commerce of the People's Republic of China officially stated that through recent trade consultations, both sides have set targets for expanding two-way agricultural trade and have agreed in principle to include agricultural products under a reciprocal tariff reduction framework. Trade cooperation will adhere to market-oriented principles, allowing enterprises to conduct trade autonomously. Going forward, these policy benefits are expected to transmit cotton downstream.
Domestic cotton fundamentals remain unchanged, with the off-season destocking pace continuing. As of July 3, 2026, China's total commercial cotton inventories stood at 2.9859 million tonnes, down 138,300 tonnes from the previous week (-4.43%). Among these, Xinjiang commercial cotton inventory was 1.8138 million tonnes, down 130,100 tonnes week-on-week (-6.69%), while inland commercial cotton inventory was 580,100 tonnes, down 4,700 tonnes week-on-week (-0.80%).
Looking ahead, domestic spot cotton supply is expected to remain relatively tight until the large-scale marketing of new-crop cotton in October. High-quality resources such as North Xinjiang's Double-29 (29mm staple length and 29g/tex strength (minimum) and Double-30 (30mm staple length and 30g/tex strength (minimum) grades are becoming increasingly scarce, and cotton commercial inventories continue to decline, effectively supporting spot prices. Furthermore, the approach of the traditional textile peak season in the second half of the year provides additional support for cotton prices.
In summary, multiple bullish factors are effectively underpinning cotton prices. However, textile mills have yet to fully shake off procurement pressures brought by the ongoing cotton demand off-season.
In the near term, cotton prices are expected to maintain a volatile but firm trajectory, with trading ranges widening. Key factors to monitor going forward include actual cotton field conditions following the heatwave in Xinjiang, state reserve releases, the implementation timeline of Sino-U.S. agricultural tariff reduction measures, and actual downstream order intake and stocking activities.
