Cotton reserve rotation begins, cotton market anchored
On July 13, the 2022 central reserve cotton rotation work was officially launched.
For a long time, cotton reserves have been like the “reservoir” of the domestic cotton market, playing a role in regulating market supply. Therefore, the implementation of cotton reserve policies over the years has attracted great attention from textile companies. This year, some new adjustments have been made to the detailed rules for cotton reserve rotation compared with previous years. So, what changes are worthy of our attention? What impact will the start of cotton reserve rotation have on the market?
Cotton purchasing and storage policies become more flexible
On July 8, China Cotton Reserve Management Co., Ltd. issued an announcement stating that in accordance with the requirements of relevant national departments and the arrangements of China Grain Reserve Management Group Co., Ltd., in order to promote the smooth operation of the cotton market, China Cotton Reserve Management Co., Ltd. will organize the 2022 The first batch of cotton from the central reserve was rolled in.
After this announcement was released, the market reaction was relatively strong, and the activity of Zheng cotton futures increased that night.
By comparing last year’s policies, a reporter from China Textile News found that no matter in terms of cotton rotation time, quantity, cotton rotation price, quality, etc., This year’s cotton purchase and storage policy is more flexible, and the intention to stabilize the market is more obvious.
Different from last year when the start and end time of cotton rotation was clarified, this time the cotton reserve rotation work was launched on July 13, but the end time will be determined in due course based on the market situation, rotation situation, etc. In terms of quantity, the total incoming volume this year is 300,000 tons to 500,000 tons. In principle, the daily listing quantity is arranged in a balanced manner and adjusted dynamically. Compared with last year’s stipulated daily bidding of about 7,000 tons, this year’s rotation does not limit the daily rotation quantity, and has become more flexible in terms of daily rotation volume and total rotation volume.
In terms of price, the maximum price for the 2022 round of bidding is dynamically determined based on the domestic cotton spot price on the previous working day, and the start and stop prices are set. The current domestic cotton spot price on the current working day is lower than 18,600 yuan/ton (inclusive) Start the rotation when the price is higher than 18,600 yuan/ton, and stop the rotation when the price is higher than 18,600 yuan/ton. The formula for calculating the rotation price is: the maximum price of today’s reserve cotton rotation bidding (off the standard grade 3128B) = the domestic market cotton spot price index of the previous working day.
In terms of quality requirements, this year’s policy has made new adjustments to the color grade standards of incoming cotton. The color grade requirements have been relaxed, from the previous “white cotton grade 3 and above accounting for no less than 80%” to “As long as the first inspection result is white cotton grade 3 and above, then the reserve notarized inspection result is white cotton grade 4 and above and light spot cotton grade 1 also meets the delivery requirements.” This fully takes into account the problems caused by the long storage time of cotton. Some cotton is put into storage for inspection for possible color degradation.
In terms of trading qualifications, compared with the last round of trading qualifications, this year is limited to the “cotton target price determined after being announced by the Xinjiang Uygur Autonomous Region and Xinjiang Production and Construction Corps in 2021/2022 font>Reform processing enterprises”. Regardless of whether it is a single contract operation or a joint contract operation, as long as the ginning enterprise meets the qualification requirements specified above, it can be handed over for storage. It should be noted that cotton produced and processed by other enterprises must be processed by the enterprise itself, and cotton produced and processed by other enterprises cannot be deposited in the name of the enterprise.
Regarding the requirements for the number of packages of incoming batches, the storage enterprise needs to group the batches for storage according to the complete batch, that is, the batch to be submitted to the trading market and the cotton finally transported to the warehouse must be ensured to be the entire batch. 186 packs or 93 packs. After arriving at the warehouse for public inspection, in order to reduce the enterprise’s storage losses and maximize the convenience of storage, the enterprise can select the packages within the scope specified in the detailed rules, but the batch of 186 packages processed shall not be less than 170 packages. A batch of 93 packages shall not be less than 85 packages.
In order to facilitate the efficient advancement of warehousing work, storage companies should communicate with the storage warehouse before shipping cotton this year and register for warehousing appointments through the “Reserve Cotton Inbound and Outbound Reservation” APP. If you do not make an appointment for delivery, the warehouse may refuse to accept it. Failure to make an appointment multiple times may lead to a breach of contract.
In response to quality breaches reported by some delivery companies, relevant departments this year actively absorbed and adopted reasonable suggestions from delivery companies and further relaxed relevant requirements based on extensive surveys. The most obvious change is that if the delivery enterprise can prove that the proportion of the delivered cotton in the Xinjiang regulatory warehouse notarized inspection results is not less than 80% of the color grade white cotton grade 3 and above and other indicators meet the storage requirements, then due to the notarization of the warehouse If the inspection results do not meet the storage requirements and cannot be stored, the default will not be counted.
Let the cotton ginning factory see hope of survival
Currently, cotton futures and spot prices are falling frequently. What impact will this year’s first round of central reserve cotton purchases have on the subsequent trend of cotton? In this regard, Huaan Futures cotton analyst Yao Yu said that the biggest highlight of this year’s cotton purchase and storage is to stabilize cotton prices and enhance market confidence.
Yao Yu analyzed that the ultimate purpose of stockpiling cotton in and out is to stabilize the market. The normal rotation time of reserve cotton is usually the time when new cotton is on the market, in order to reduce the pressure on the market of large quantities of new cotton. The non-marketing time of cotton is generally the time when cotton reserves are rotated out, in order to make up for the structural gap in cotton supply. But in view of today’sIn order to promote the smooth operation of the cotton market, the state has also started the rotation of reserve cotton during the non-launch period of new cotton. It can be seen that the relevant state departments attach great importance to the stability of market cotton prices, but at market prices The acquisition also shows that relevant state departments still hope that policies will have less impact on the market, and the final price is still determined by the market.
The person in charge of a cotton-related group in Henan Province has a similar view. He believes that the rotation of cotton reserves first calmed the anxious mentality of the ginners and made them rational. Secondly, it stabilizes the enthusiasm of cotton farmers to strengthen the management of cotton fields in the new season, so that they no longer worry about whether the new season seed cotton price will be significantly lower. It once again supports traders to carry out normal cotton purchase and sales activities, dispelling its worries that cotton prices will fall sharply again. Overall, this measure calmed the uneasy mood of the entire market and gave all market entities hope of stabilizing cotton prices.
“Since the acquisition of new seed cotton last year was completed and the processing of lint was coming to an end, the domestic cotton futures spot price has been performing poorly. Since entering May this year, cotton prices have It continues to fall. For example, the futures price of Zheng Cotton’s main 2209 contract fell from the highest point of 22,035 yuan/ton on May 5 to the lowest price of 16,220 yuan/ton on July 8, with a cumulative decline of up to 5,815 yuan/ton.” Shanghai Yu Yang Yong, general manager of An Trading Co., Ltd., said that due to the long-term low cotton prices, coupled with the accumulation of downstream products and the impact of other external factors, the current domestic cotton market has finally experienced a difficult survival pattern that has been rare for many years.
According to Yang Yong, at present, market entities with high-cost lint, such as ginners, are not only difficult to achieve the business goal of sales at the same price, but are also currently facing the pressure of “double knot zero” and poor capital turnover, which makes them lose money. The ability of individual cotton gins to continue operating has reached the brink of collapse. “After the cotton purchase and storage starts, it is conservatively estimated that cotton prices will bottom out, and the probability of another sharp decline will be much lower. This gives many ginners hope of survival.” The person in charge of a ginnery said that after cotton prices stabilized , the cotton in your hands is truly “valuable”.
The weak supply and demand situation is temporarily difficult to change
On July 13, China Cotton Reserve started the rotation of the first batch of central reserve cotton in 2022, with a planned rotation of 5,000 tons and a maximum price of 17,550 yuan/ton.
In this regard, agricultural product researcher Wu Xinyang believes that the benefits of this purchase and storage are reflected in providing limited market liquidity, rather than supporting prices.
Wu Xinyang believes that due to market-oriented bidding rules, the role of this purchase and reserve in providing liquidity is greater than its role in supporting prices, and the purchase and reserve quantity may not be as expected. Wu Xinyang introduced that the cotton public inspection is divided into two parts, the quantity inspection of 42 yuan/ton and the quality inspection of 58 yuan/ton. The bidding mechanism and the requirement of secondary public inspection make it difficult for processing companies to obtain higher transaction prices in the round bidding than in the spot market. Compared with spot market transactions, this round of cotton reserve rotation provides a way out for processing companies with sales difficulties, releasing a certain amount of liquidity in the market to facilitate processing companies to realize cotton resources.
“Taken together, although the purchase and storage policy has finally been implemented, the boost to cotton prices may be limited, and multiple purchases and storage may be needed to alleviate the current weak supply and demand situation.” Nanhua Futures analyst Bian Shu Yang believes that this round of reserve cotton is still difficult to change the long-term weak supply and demand pattern of the domestic cotton market, but the metronome role of the state reserve cotton in the domestic cotton market cannot be ignored.
Bian Shuyang said that if the target amount is reached this time, two rounds of purchases and storage will be needed to return the cotton supply and demand pattern to a normal balance. There are still two months left before the new cotton purchase. Before that, China Cotton Reserve may carry out another purchase and storage plan. However, it should be noted that the current cotton spot price is around 17,700 yuan/ton, while the start and stop prices set by China Cotton Reserve are 18,600 yuan/ton, so cotton prices may suspend their decline or even rebound, but there is not much room for rebound. , if the cotton price exceeds the purchase and storage price line, the government will not be able to achieve the purchase and reserve target, so 18,600 yuan/ton is likely to become the upper limit of the short-term spot price. At the same time, because the purchase price of cotton from ginners last year was too high, even if cotton companies sold it to China Cotton Reserve at that price, they were still in a state of loss. Therefore, after the policy is launched, it is necessary to pay more attention to the sales enthusiasm of cotton companies and track transaction prices and Quantity situation.
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