Price trend

In early January, cotton spot and futures prices surged significantly, reaching a new high in nearly a year and a half. The main driving force behind the price increase shifted from strong expectations and sentiment at the beginning of the month to an assessment of the market's ability to absorb the high prices. The market entered a consolidation phase in mid-January. According to SunSirs' commodity market analysis system, as of January 16th, the spot price of 3128B grade lint cotton was 15,936 RMB/ton, a 2.49% increase compared to the beginning of the month.

Market Analysis

Driven by multiple positive factors, including expectations of tighter supply, generally optimistic macroeconomic sentiment, and policy rumors suggesting a potential reduction in Xinjiang cotton planting area in 2026, the Zhengzhou cotton futures contract continued its upward trend since December 2025, starting from early January. As the 2025/2026 cotton production figures became clearer, the high production expectation of 7.5 million tons was gradually absorbed by the market. Fueled by bullish sentiment, the contract price surged to 15,035 RMB/ton on January 7th (settlement average price 14,806 RMB/ton), reaching a new high in nearly a year and a half. After the surge, market divergence quickly widened. From January 8th onwards, the Zhengzhou cotton futures contract rapidly retreated from its high, falling by more than 200 RMB/ton at one point, before entering a period of sideways consolidation.

As of January 16th, market sentiment was increasingly divided between bulls and bears. The core drivers of the market had shifted from near-term supply and demand realities to expectations for planting in the new year and policy dynamics. On the one hand, the market was widely focused on planting intentions for Xinjiang cotton in the 2024/25 season. Given the comparative returns in recent years, some producing regions were showing a stronger inclination to switch to grain crops.  Coupled with constraints such as water resources, the expectation of a potential decrease in cotton acreage in the new year provided crucial support for forward contracts and formed the basis of current prices.

On the other hand, the uncertainty created significant pressure due to the lack of clarity. The new year's target price subsidy policy remained unclear, and its specific implementation standards and intensity would directly affect farmers' ultimate planting decisions and long-term cost support.

In the downstream market, the cotton yarn market in the first half of the month generally showed a weak pattern of "passive price increases with little actual trading." Cotton yarn prices were passively raised due to the strong upward trend in cotton futures and spot prices, but downstream demand did not keep pace, leading to a widening gap between production and sales. Actual market transactions were sluggish, and a wait-and-see attitude prevailed.

Market Outlook:

Given the current situation, in the short term, without clear guidance on planting area or the implementation of major policies, this strong wait-and-see sentiment and high-frequency volatility are expected to continue. Furthermore, with the Chinese New Year approaching, textile companies have some demand for raw material replenishment, but the scale of this demand remains to be seen.  Overall, cotton prices are expected to show a trend of consolidation and fluctuation.

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