Report Industry Investment Rating No relevant content provided. Core View of the Report The report indicates that the upward pressure on cotton prices remains significant, and the driving force is weak. Considering the global and domestic cotton market conditions, it is expected that the cotton price will face substantial upward pressure, and it is advisable to gradually short the far - month contracts on rallies [35]. Summary According to the Directory International Cotton Market Analysis - **Global 2025/26 Cotton Supply and Demand**: In the USDA's June report, for the 2025/26 season, global cotton production, consumption, beginning/ending stocks, and trade volume are all adjusted downward. Production is cut by over 800,000 bales, with an increase in China's output and decreases in India, the US, and Pakistan. Consumption is reduced by over 300,000 bales. Ending stocks decline by nearly 1.6 million bales, and the stock - to - use ratio drops 0.2 percentage points month - on - month and 1.1 percentage points year - on - year. The global supply - demand is in a weak balance, and the production - consumption gap widens by 110,000 tons to - 170,000 tons [2]. - **US Cotton Supply and Weather**: The USDA's June report shows that for the 2025/26 season, US cotton production, beginning stocks, and ending stocks are adjusted downward month - on - month, while consumption, imports, and exports remain unchanged. Due to excessive rainfall and delayed sowing, the harvested area is cut by 2 percentage points to 8.19 million acres, and the average yield per acre drops by over 1 percentage point to 820 pounds/acre. The US cotton production is expected to be 14 million bales, 500,000 bales less than last month, the second - lowest in the past decade. Ending stocks are reduced by 900,000 bales to 4.3 million bales. As of July 6, 2025, the US cotton (American cotton) good - to - excellent rate is 52%, slightly up from the previous week (51%) but lower than the same period last year (45%). The squaring rate is 48%, and the boll - setting rate is 14% [5][7]. Domestic Cotton Fundamentals - **Expected Domestic Cotton Production in 2025/26**: In 2024, the domestic weather was suitable during the new cotton planting and growing period, with a record - high yield per unit of 2,171.6 kg/ha, a year - on - year increase of about 7.8%, and the total national output was around 6.7 million tons. In June 2025, the National Cotton Market Monitoring System's survey shows that the actual sown area in 2025 is 45.803 million mu, a year - on - year increase of 2.707 million mu or 6.3%. The expected total output will increase by 2.8% to 6.864 million tons, and the report estimates the output may be around 7 million tons [10]. - **Current Domestic Cotton Commercial and Industrial Inventories**: As of June 15, the national cotton commercial inventory is 3.1269 million tons, in a stable destocking state; the national cotton industrial inventory is 0.9301 million tons. The commercial inventory is at a relatively low level, and the industrial inventory is at the highest level in the same period of history, showing a state of low upstream inventory and high downstream inventory [14]. - **Continuous Accumulation of Yarn and Grey Cloth Inventories**: As of the end of May 2025, the yarn inventory of domestic textile enterprises is 22.34 days, an increase of 1.3 days from last month and a decrease of 5.2 days year - on - year. The grey cloth inventory is 32.9 days, an increase of 1.7 days from last month and 2 days year - on - year. Yarn and grey cloth are continuously accumulating inventory [16][19]. - **Weak Textile and Apparel Export Performance**: The US is one of the main export destinations for China's textile and apparel. From January to May 2025, the cumulative textile and apparel exports are $116.67 billion, a 1% increase. Among them, textile exports are $58.48 billion, a 2.5% increase, and apparel exports are $58.2 billion, a 0.5% decrease. In May, textile and apparel exports are $26.21 billion, a 0.6% increase and an 8.4% month - on - month increase. Textile exports are $12.63 billion, a 1.9% decrease and a 0.4% month - on - month increase, and apparel exports are $13.58 billion, a 3% increase and a 17% month - on - month increase [23][25]. - **Low Growth Rate of Domestic Textile and Apparel Consumption**: From January to May 2025, China's total retail sales of consumer goods are 20.3171 trillion yuan, a 5% year - on - year increase. In May, the total retail sales of consumer goods are 4.1326 trillion yuan, a 6.4% year - on - year increase, and the growth rate rebounds by 1.3 percentage points month - on - month. From January to May 2025, the total retail sales of clothing, shoes, hats, and knitted textiles are 613.8 billion yuan, a 3.3% year - on - year increase. In May, the total retail sales of clothing, shoes, hats, and knitted textiles are 122.5 billion yuan, a 4% year - on - year increase, and the growth rate expands by 1.8 percentage points month - on - month [29]. - **Poor Downstream Immediate Textile Profits**: As of the end of June, the domestic immediate yarn - cotton price difference is around 5,400 yuan/ton, continuously declining this year and at a relatively low historical level. In 2024, the overall yarn - cotton price difference was in the range of 6,000 - 6,600 yuan/ton. Downstream textile enterprises have suffered large losses for a long time, which has a significant negative feedback on the upstream raw material prices, and the low downstream profits make it difficult to actively replenish inventory [31]. Trading Logic - **Global Perspective**: According to the USDA balance sheet, in the 2025/26 season, the global cotton supply - demand is in a weak balance. The current US weather is favorable for cotton growth, and the US good - to - excellent rate remains at a high level. There is also a lot of uncertainty in global tariffs, and both supply and demand have large adjustment spaces [32][35]. - **Domestic Perspective**: Currently, the domestic commercial inventory is at a low level, but the industrial inventory is at a high level, and the downstream yarn and grey cloth inventories are continuously accumulating. The losses of downstream textile enterprises have generally increased, and even Xinjiang yarn mills are on the verge of break - even. The willingness of the industrial chain to replenish inventory is low [35]. - **Demand Aspect**: The export demand for textiles is weak, and domestic consumption is also sluggish. Under the situation of tariff frictions, there is a lot of uncertainty in future exports. It is difficult to see variables that can significantly improve consumption in the short term [35]. - **Price Outlook**: The high inventory of domestic cotton spinning mid - and downstream finished products, combined with widespread losses, restrains the willingness of future yarn mills and grey cloth mills to replenish raw material inventory. The planting area of Xinjiang cotton has increased in the new season, and the expectation of a bumper harvest is strong. It is expected that the upward pressure on cotton prices will still be significant, and it is advisable to gradually short the far - month contracts on rallies [35].