SunSirs: Domestic-Foreign Price Differential Constrains Cotton's Upside Potential

The latest report from the Cotton Association of India (CAI) indicates that as of January 31, 2026, CAI's assessment of India's 2025/26 cotton balance sheet remains unchanged from last month's evaluation. Compared to the previous year, opening stocks increased by 360,000 tons, production rose by 80,000 tons, imports grew by 150,000 tons, domestic demand decreased by 150,000 tons, exports fell by 50,000 tons, and closing stocks expanded by 800,000 tons. The 2025/26 balance sheet remains unchanged.

According to a U.S. agency survey, U.S. cotton farmers intend to plant 9.005 million acres in 2026, down approximately 3% from 2025. The industry awaits the release of the NCC's U.S. cotton planting intentions report. Intentions represent only one factor influencing cotton and cottonseed supply; weather and agronomic conditions during March to May remain critical determinants of final production levels.

According to the USDA's latest February supply and demand forecast, global cotton supply was revised upward by 90,000 tons to 26.09 million tons; total demand was revised downward by 44,000 tons to 25.847 million tons; and ending stocks were revised upward by 140,000 tons to 16.35 million tons. Recent reports indicate a reduction in Xinjiang's cotton planting area. According to National Bureau of Statistics data, Xinjiang's 2025 cotton acreage was 38.87 million mu. The Xinjiang Cotton Association has indicated that 2026 acreage is projected to decrease by 2.66 million mu to 36.21 million mu, representing a 7% reduction.

However, international cotton prices remain depressed. U.S. cotton has been generally weak, primarily due to global oversupply. Over the past few years, cotton production in China and Brazil has continued to increase. China has provided subsidies, while Brazil has benefited from improved land utilization through soybean-cotton rotation in its Midwest region. Combined with weak economic conditions and insufficient resilience in textile demand, this has created significant supply pressure on cotton. Beyond the USDA report, the latest data from the International Cotton Advisory Committee (ICAC) projects global cotton production for the 2025/2026 season at 260.764 million tons, a 1.2% year-on-year increase, compared to the 2024/2025 season's estimated output of 257.750 million tons. Global cotton ending stocks for the 2025/2026 season are projected at 16.7765 million tons, a 5.6% year-on-year increase, compared to 15.8913 million tons for the 2024/2025 season. The substitution impact of synthetic fibers on cotton has always existed. Synthetic fibers are standardized industrial products whose production is unaffected by climate, with flexible capacity adjustments and significantly lower costs than cotton. During economic downturns, low energy costs drive down synthetic fiber prices, lowering consumer willingness to pay for apparel. Based on historical data projections, China's cotton consumption is expected to reach 7.8 million tons in 2026/27, while production is forecast at 6 million tons, widening the supply-demand gap to 1.8 million tons. The 2025 import quota stands at approximately 1.4 million tons, with little room for significant expansion. The 2026 tariff-rate quota of 894,000 tons was already allocated at the beginning of 2026. While supply may be slightly tight in 2026, domestic inventories exist, preventing severe shortages. Over recent years, Brazil has emerged as the largest contributor to global cotton supply growth. Data indicates that Brazil's cotton output has surged from 1.5 million tons in 2016/17 to 4.07 million tons in the current season. In 2023/24, Brazil's cotton exports reached 2.7 million tons, surpassing the United States for the first time to become the world's largest cotton exporter. This expansion is primarily driven by Brazil's substantial soybean production growth and the adoption of cotton-soybean rotation systems. Following the harvest of the first soybean crop, cotton planting commences in January-February. This practice not only aids in pest and disease control but also enhances land utilization efficiency.

Overall, constrained by the aforementioned factors, domestic cotton prices are likely to exhibit a volatile trend in the near to medium term. Future breakthroughs will depend on: the volume of import quotas, the implementation of Xinjiang's production reduction measures, future weather conditions, and potential reductions in U.S. planting area. According to institutional surveys, U.S. cotton farmers intend to plant approximately 9.005 million acres in 2026, representing a year-on-year decrease of about 3% compared to 2025. Technically, cotton is still viewed as trending sideways with a slight upward bias.

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