Q: The current inventory of cotton is high and the basis is flat. The demand side seems to be recovering, but it is very slow. Has cotton been accumulating in inventory? In many places, there has been price reduction and destocking. Wouldn’t this bring futures down? At present, cotton has been fluctuating weakly upward, with large upward and downward adjustments. How to grasp the market outlook when there is no driving situation or weak driving situation? If you have a position that is currently losing money, do you have any suggestions for the market outlook? In addition, what other points can we pay attention to in cotton? weather? locust? ? How will the market outlook evolve?
There are many minor questions in your question. Judging from the current time point, I personally feel that the tradable value of cotton is not large. You say let it rise sharply. First, it is objective supply and demand. The fundamentals do not support its sharp rise. Secondly, there is currently no theme for speculative value speculation. Therefore, in the absence of hype and weak driving force due to high inventory, that kind of surge is obviously unlikely. Then, there are many small questions in your question. I will briefly answer them in the following two parts.
1 The Dilemma of Cotton
One of the problems cotton has encountered over the years is the problem of high inventory destocking. In this case, high inventory Continuously lowering the valuation of cotton has been a normal phenomenon over the years. Of course, during this period, funds will also use some new variables to make a fuss, such as the expected production reduction caused by weather problems on the supply side. Even if cotton is in high inventory, futures are speculating on future expectations, and funds can also use weather problems to reduce cotton. It is speculated to be above 19,000, so if there is a problem on the supply side, cotton will definitely rise, because this variety is also relatively speculative. When the supply side provides funds with topics that can be speculated on, funds will flock in; on the contrary, there may be new developments on the demand side. Increasing variables are generally caused by macro issues that affect demand expectations, such as the impact of trade wars and epidemics. Cotton already has high inventories, and coupled with poor expected demand, the decline is even more severe. Therefore, there are problems on the demand side, and cotton Must fall.
Your question asked whether cotton has been accumulating in warehouses. In fact, it is not true. According to the seasonality of domestic cotton, basically every year from mid-to-late September to the end of the year after new cotton comes on the market, cotton continues to accumulate in warehouses. The process from next year until the new cotton comes on the market is basically a slow destocking process. One problem we have faced in recent years is that inventory has reached a new level every year at the same time, and cotton prices have gone to a lower level every year.
(Source: Tianxia Granary)
So, as far as the current situation of cotton is concerned, when demand remains normal, the price It is difficult to rise, let alone if there is a problem with demand. In the same way, if cotton prices want to rise sharply, inventory must be cleared. It is basically difficult to clear inventory by relying on the demand side. The only way to do this is by relying on the supply side. reformed.
Theoretically speaking, the price of cotton is decreasing year by year, the income from cotton cultivation should continue to decline, the enthusiasm of cotton farmers for planting should be dampened, the planting area should naturally decline, the yield of cotton should also gradually decline, and the supply side begins to slowly Cut overcapacity, but we will find that this is not the actual situation. Domestic cotton, especially the cotton planting area in Xinjiang, the main producing area, has increased year by year, and now remains stable at a high level.
(Source: Tianxia Granary)
Due to the existence of the national subsidy policy, even if the price of cotton is very low, the price of cotton farmers The income from planting can still be guaranteed, and the planting area can basically remain stable at a high level. Therefore, the cotton planting area in Xinjiang is stable, and if there is no problem with the weather, the output can basically be guaranteed.
In addition, Xinjiang is the main cotton producing area in China. I have also introduced the impact of the delivery warehouse setting on varieties before. If the delivery warehouse is set up in the production area, it will definitely be beneficial to the seller’s delivery, so When it is convenient for industrial hedging, it is easy to generate a large number of warehouse receipts. This is the case for cotton. The planting area in the main producing areas is stable, and there are more and more delivery warehouses in Xinjiang. There are more and more industrial hedging participations. High yield + high hedging. Most people simply can’t handle so many goods, so they keep the price of cotton locked.
On the contrary, if the delivery warehouse is set up in the sales area, it must be conducive to the buyer’s receiving the goods, so it is easy to force the position. It is easy for the seller to deliver the goods inconveniently, the buyer is convenient to receive the goods, and there are fewer warehouse receipts. Obviously, cotton This will never happen. Therefore, the changes in the cotton variety over the years are that in order to ensure the stability of Xinjiang, the government provides subsidies to ensure the income of cotton farmers, and also adds a lot of delivery warehouses to companies there to hedging and locking in profits. Therefore, the state’s support policies and the exchange’s policies have jointly contributed to the stability of the cotton planting area in Xinjiang. Under normal weather conditions, cotton output is stable, inventories and warehouse receipts reach a new level every year, and the destocking of cotton seems far away.
So if cotton wants to have a big bull market, I personally think that unless either of the following two situations occurs: First, three or more of the four countries of China, the United States, India and Pakistan are the main cotton producers. �3222668003.png”>
So you will find that it is difficult for the 01 contract to have a big market, because at this stage the supply side has no basis for weather speculation, and it even needs to be repaired for the early hype. At the same time , the supply pressure of new cotton has increased, inventory has continued to accumulate, and 01 warehouse receipts have to face a discount of 4 months/ton per calendar day. These are not favorable for the 01 contract, so judging from the historical situation , the 01 contract is basically a weak contract. If I were to say how the market outlook will evolve, then I can only refer to the historical situation. The subsequent 01 contract may be the same as in previous years. Basically, it is difficult to make a big move. market, but the current price is relatively low, so the room for decline may be limited, but it is unlikely that a big market will occur, so I say it is a useless market and can only create some structural opportunities.
As for whether you need to pay attention to factors such as weather and locusts in cotton, you can pay appropriate attention, but don’t pay too much attention. You know that this thing is just a subject for capital speculation. But I still say that everyone in the futures market is drunk. I am not in the best state to be awake alone, because it may be more painful if you wake up early. For example, if you know clearly that these are all hype, so you go short, then you are obviously going against the trend and can easily become a martyr of the revolution.
So if you lead the market too much, you will suffer. If you lead the market a little, you will enjoy it! The same situation also includes what we call bubbles. When we find that there is a price bubble in an asset, we go in. If you are short, you will also feel uncomfortable. It is often in the early stages of a bubble that funds flow in. At this time, many people who are long often enjoy the paper wealth brought by the bubble. In the later stage of the bubble, many people are in a state of madness. status, participating in the entire process from birth to bursting of the bubble. The result is only paper wealth and no wealth in the pocket.
So when a bubble occurs in a variety, the two types of people are more depressed. One kind wakes up too early, goes in early, and ends up emptying out, and ends up becoming a revolutionary martyr; the other kind of person wakes up too late, leaves the market too late, and ends up only earning paper wealth, not actual wealth. . We all should not be these two kinds of people, but should become the third kind of person. At first you know this is a bubble, then you go in and enjoy the bubble, and finally you leave the bubble when others are crazy.
I I have seen some very obsessive traders. They know that all news is just a cover for speculation. They think that others are fools for speculating on this. They themselves have a clear understanding of the situation and think that the price is a bubble. When you increase your position, you can imagine the result, and in the end you complain about other people’s manipulation. There are too many such rules in life and trading. I think people who complain actually don’t understand. From a secular perspective, don’t complain. , but should understand the rules, adapt to the rules and use the rules reasonably; from a worldly perspective, complaining is the most harmful behavior to the blessings. If you are not able to do something, you will seek for yourself.</p
