After the Spring Festival, the global epidemic situation slowed down and the economy recovered significantly. The United States’ increased stimulus policies pushed up inflation expectations, causing turmoil in the international financial market and triggering the cotton market. Big swings. Where will the cotton market go next? This monthly report will be discussed.
Review of the first part
1. Domestic and foreign cotton prices surged and fell
International cotton prices surged fall back. Driven by the slowdown of the global epidemic situation, the continuous advancement of vaccination, and the US$1.9 trillion stimulus policy of the United States, global stock markets have continued to rise since the Spring Festival holiday, and international cotton prices have risen sharply. On February 25, ICE cotton futures once rose to 95.6 cents/pound, reaching its highest level since March 2014. Capital is worried about the risk of inflation. On February 25, the yield on U.S. long-term Treasury bonds rose rapidly, the cost of funds increased, and the asset bubble faced the risk of bursting. On February 25, ICE cotton futures fell to the limit for a time, and then oscillated weakly. According to data from the National Cotton Market Monitoring System Data Center, as of March 12, 2021, the settlement price of the main ICE cotton futures contract was 87.56 cents/pound, an increase of 1.38 cents/pound, or 1.6%, from before the Spring Festival, representing the main price of imported cotton in China. The average price of the international cotton index (M) with port-to-shore average price is 94.99 cents/pound, an increase of 0.37 cents/pound, or 0.39%, compared with before the Spring Festival. The import cost in RMB is 15,297 yuan/ton, an increase of 8 yuan/pound from before the Spring Festival. tons, an increase of 0.05%.
Domestic cotton prices fell after rising. Due to the sharp rise in the external market during the Chinese New Year holiday, Zheng cotton jumped higher after the holiday, rising 6.7% in a week. On February 25, Zheng cotton exceeded 17,000 yuan/ton, far exceeding the pre-epidemic level and the highest level since August 2018. point. As overseas inflation expectations rise, causing huge disturbances to global asset prices, on February 26, Zheng Cotton followed ICE cotton futures and started a downward trend of oscillation. According to data from the National Cotton Market Monitoring System Data Center, as of March 12, 2021, the settlement price of Zheng Cotton’s main contract was 15,900 yuan/ton, an increase of 215 yuan/ton, or 1.37%, from before the Spring Festival; the National Cotton Price B Index (representing the mainland The price of grade 328 lint cotton is 15,953 yuan/ton, which is 446 yuan/ton higher than before the Spring Festival, an increase of 2.87%.
Part Two Analysis
1. Domestic and International Macroeconomic Environment
The global economy is showing a recovery trend. The U.S.’s increased stimulus policy has increased inflation risks. In February, the U.S. and European manufacturing PMIs rose to 60.8 and 57.9 respectively, both hitting three-year highs. The IMF predicts that the world economy is expected to grow by 5.5% in 2021. Instead of discussing the withdrawal of stimulus policies, the U.S. policy authorities have significantly increased stimulus efforts. After the Spring Festival, financial capital is worried that a new round of rising inflation expectations has been previewed. On February 25, the 10-year U.S. Treasury bond once surged to 1.61%, with fluctuations as high as 2 times the standard deviation of the past year, causing cross-asset and cross-market fluctuations. The spread of volatility. Federal Reserve Chairman Jerome Powell disappointed investors by reiterating that it would maintain accommodation and liquidity but did not disclose measures to try to curb rising inflation. U.S. long-term Treasury bond yields continue to run at high levels, and the risk of asset bubbles has increased.
China’s risk prevention has become a top priority. On March 2, Guo Shuqing, Secretary of the Party Committee of the People’s Bank of China and Chairman of the China Banking and Insurance Regulatory Commission, said that the side effects of the extremely loose policies in Europe and the United States have appeared. The financial markets of developed countries in Europe and the United States are operating at a high level, which is seriously contrary to the real economy. He is worried that this situation will be forced to adjust sooner or later. He proposed to monitor and resolve various financial risks without slackening efforts. He pointed out that due to the rebound in interest rates in the entire market this year, loan interest rates are expected to rebound and adjust, but the overall interest rates are still low. The current Sino-US relations are severe and complex, and risk prevention is particularly important for China. This year’s government work report sets GDP growth in 2021 at more than 6%, which is significantly lower than the 7.9%, 8.1%, and 7.8% forecasts of China’s GDP growth in 2021 respectively by the World Bank, IMF, and OECD, which shows the determination to prevent risks.
2. Analysis of supply and demand situation
(1) Supply
In March, cotton processing in the northern hemisphere is coming to an end , the centralized cotton supply pressure in the 2020/21 season has eased, and Brazilian cotton sowing in the southern hemisphere has ended. The decline in global cotton planting area in 2021/22 is expected to weaken.
1. Trends in major foreign cotton producing countries
The US cotton signing in 2020/21 is coming to an end, and the expected decline in cotton planting area in 2021/22 is limited . As of March 12, the cumulative sales of U.S. cotton in 2020/21 were 3.29 million tons (shipped + unshipped), completing 97% of the USDA export forecast; the USDA predicts that the U.S. cotton planting area will only decrease by 0.7% in 2021/22. This was lower than the previous forecast of -4.7% by the US Agriculture Journal.
Indian cotton exports are expected to increase. At present, India has entered the end of the harvest season, and the daily market volume of new cotton has dropped from 51,000 tons to 21,000-29,000 tons. Cotton Corporation of India (CCI) has completed 90% of its minimum price acquisition target. Due to the recovery of overseas demand, CCI is preparing to export 1.275 million tons of cotton inventory in the next few months.
Pakistan’s new cotton market has ended, with a gap between supply and demand of 590,000 tons. The new cotton market in Pakistan in 2020/21 has basically ended. As of February 15, the total market volume in Pakistan was 955,000 tons, a year-on-year decrease of 34%. Data from the Pakistan Bureau of Statistics in early March showed that Pakistan’s supply and demand gap this year was at least 1.02 million tons, and about 595,000 tons needed to be imported.
Brazilian cotton sowing has basically ended, and output continues to decline. The Brazilian National Commodity Supply Company and the Brazilian Cotton Growers Association estimate that the sown area of Brazilian cotton in 2020/21 will be 1.424 million hectares and 1.399 million hectares respectively, a year-on-year decrease of 14.6% and 16% respectively; the output will be 2.509 million tons and 2.491 million tons respectively. , year-on-year difference�”. The world’s major developed countries continue to increase loose monetary policies, causing financial risks to increase sharply. In December 2020, the Federal Reserve stated that it would maintain a level of 0-0.25% until the end of 2023. With the emergence of asset bubbles, the recent trading of federal funds interest rate futures has Investment data shows that market investors currently generally expect that the Federal Reserve will start the process of raising interest rates in early 2023. It is expected that capital will reflect it in advance, and the cotton market rhythm will be performed earlier than generally expected.
No. Three parts of production, sales and inventory forecast
1. The global cotton inventory to consumption ratio will further decline in 2020/21
International Cotton Advisory Committee (ICAC) 2021 March Data released in March showed that global cotton production in 2020/21 was 24.2 million tons, an increase of 100,000 tons, or 0.41%, from the previous month, and a year-on-year decrease of 2.15 million tons, or 8.16%; consumption was 24.46 million tons, an increase of 36% from the previous month. million tons, an increase of 1.49%, a year-on-year increase of 1.69 million tons, an increase of 7.42%; the ending inventory was 21.11 million tons, a decrease of 70,000 tons, a decrease of 0.33% from the previous month, a decrease of 260,000 tons, a decrease of 1.22% year-on-year; global production The demand situation has shifted from production exceeding demand by 3.58 million tons in 2019/20 to underproduction by 260,000 tons in 2020/21; the global inventory-to-consumption ratio in 2020/21 is 86.3%, down from 93.85% in 2019/20 7.55 percentage points.
2. The gap between domestic cotton production and demand will expand in 2020/21
Based on relevant special surveys Based on the analysis of the domestic and foreign economic environment and market conditions, in March 2021, the National Cotton Market Monitoring System predicted the domestic cotton production, sales and inventory as follows: China’s cotton production in 2020/21 is 5.95 million tons, a year-on-year increase of 107,000 tons, a year-on-year increase of 1.83 %; consumption was 7.7758 million tons, a year-on-year increase of 299,100 tons, a year-on-year increase of 4%; the ending inventory was 6.164 million tons, a year-on-year decrease of 64,600 tons, a year-on-year decrease of 1%; the production-demand gap was 1.8258 million tons, an increase of 192,100 tons from the previous year. tons, the inventory-to-consumption ratio was 79%, down 4 percentage points from the previous year.
Main conclusions
Synthesis Look, the marginal tightening of supply and demand in the cotton market is relatively clear and has been digested by the market. The financial market environment will enter an unstable stage in 2021. The United States insists on increasing its loose monetary policy, raising the risk of asset bubbles being burst, and financial risks increasing sharply. There is a serious deviation between domestic and foreign financial policies, and cotton prices, which are closely linked to domestic and foreign markets, need to adapt. Coupled with the serious and complicated Sino-US relations, the US has imposed sanctions on Xinjiang cotton and there is increasing pressure, and the risk of cotton market instability has increased.
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