Cotton Market Outlook
Market highlights and key data: In futures trading, the cotton 2701 contract closed at 17,035 yuan per tonne yesterday, up 60 yuan from the previous session, representing a gain of 0.35%. On the spot side, the 3128B cotton ex-farm price in Xinjiang reached 17,934 yuan per tonne, up 94 yuan day-on-day, with a spot basis of CF01+899, widening by 34. The national average price for 3128B cotton stood at 18,035 yuan per tonne, up 76 yuan from the prior day, with a spot basis of CF01+1000, expanding by 16.
Recent market developments: On August 20, reserve cotton sales were concluded with 36 enterprises participating. A total of 8,031.629 tonnes of reserve cotton were offered for sale, with the full volume transacted, achieving a 100% transaction rate. The average transaction price came in at 17,504 yuan per tonne, up 80 yuan from the previous day. When converted to the 3128 standard, the price reached 18,117 yuan per tonne, up 57 yuan. Xinjiang cotton achieved an average transaction price of 17,334 yuan per tonne, rising 112 yuan, while imported cotton averaged 17,578 yuan per tonne, up 69 yuan day-on-day.
Market analysis: On the international front, the latest USDA report lowered the U.S. cotton abandonment rate, though cotton production was slightly reduced due to lower yields, broadly aligning with market expectations. Persistent expectations of reduced global supply for the 2026/27 season suggest the global cotton supply-demand balance is projected to shift from surplus to deficit, supporting a higher international cotton price center over the medium-to-long term. Additionally, China may potentially rotate in imported cotton following the current reserve sales program, which could provide a favorable boost to U.S. cotton.
On the domestic front, with the reserve sales policy now implemented, this season's supply concerns have been resolved, though the policy's overall impact will depend on the total volume released and the extent of Xinjiang's cotton production decline for the 2026/27 season. Currently, cotton growth across Xinjiang has entered the late boll-forming stage. Due to high temperatures and water resource constraints, growth conditions vary significantly across regions, leaving room for uncertainty in new-crop output.
Strategy: Neutral-to-bullish. With downstream order expectations improving in late August and supply-demand dynamics expected to tighten further in the new season, the far-month 01 contract may retain some upward momentum in the medium term.
Risks: Macroeconomic and policy risks, as well as weather conditions in major producing countries.
Sugar Market Outlook
Market highlights and key data: In futures trading, the sugar 2701 contract closed at 5,396 yuan per tonne yesterday, up 17 yuan from the previous session, a gain of 0.32%. On the spot side, white sugar prices in Nanning, Guangxi stood at 5,190 yuan per tonne, down 20 yuan day-on-day, with a spot basis of SR01-206, narrowing by 37. In Kunming, Yunnan, white sugar prices were quoted at 5,060 yuan per tonne, up 15 yuan, with a spot basis of SR01-336, easing by 2.
Recent market developments: Hedgepoint projects that sugarcane crushing in Brazil's Center-South region will reach 655 million tonnes for the 2027/28 season, 19.5 million tonnes higher than its forecast for the 2026/27 season. It also anticipates 5 million tonnes of sugarcane carryover from the 2026/27 crop. The consultancy estimates sugar production in Brazil's Center-South at 43 million tonnes for 2027/28, surpassing both the 39.9 million tonnes projected for 2026/27 and the 40.4 million tonnes recorded in 2025/26.
Market analysis: For raw sugar, unfavorable weather has reinforced expectations that the global supply-demand balance will shift into deficit for the 2026/27 season. The period of greatest pressure on raw sugar prices has passed, and these strong expectations provide underlying support for the international market, with the medium-to-long-term price center expected to move higher. However, Brazil remains in its peak crushing period through August-September, and with rainfall diminishing, crushing progress may accelerate, potentially exerting some downward pressure on prices. Market attention will remain on Brazilian production data and sugar-ethanol mix ratios.
For Zhengzhou sugar, domestic production increases this season have far exceeded expectations, pushing inventories to historical highs and confirming a clear surplus scenario for the current season. Looking further ahead, domestic production is likely to continue expanding next season, which would further narrow the supply-demand gap and weaken the correlation between domestic and international markets.
Strategy: Neutral. In the short term, rising raw sugar prices have driven Zhengzhou sugar to rebound and recover, though upside potential is likely to remain capped by inventory pressure, sustaining the pattern of a strong external market and a weak domestic one.
Risks: Macroeconomic factors, weather conditions, and policy impacts.
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