ICE cotton futures jumped more than 3% overnight as the dollar fell to a one-week low and a USDA report showed increased U.S. cotton export sales. Zheng cotton followed the strength of the external market, and the closing price of CF2105 was 15,870 yuan/ton, an increase of 1.73%. The contract hit an intraday high of 16,015 yuan/ton.
The export sales report released by the U.S. Department of Agriculture shows that in the week ending March 4, U.S. cotton export sales were 304,200 bales , hitting a four-week high. In terms of shipment, 351,600 bales of U.S. upland cotton exports were shipped that week. Bailey Thomen, head of cotton risk management at StoneX Group, said that because there is not much cotton available for sale in the United States, the market focus will be on exports. US cotton sales and export rates remain very good.
In terms of news, Foreign Ministry Spokesperson Zhao Lijian announced yesterday: At the invitation of the United States, Yang Jiechi, member of the Political Bureau of the CPC Central Committee and Director of the Office of the Central Foreign Affairs Commission, and State Councilor and Foreign Minister Wang Yi will meet with U.S. Secretary of State Blinken and President National Security Assistant Sullivan held the China-U.S. high-level strategic dialogue in Anchorage from March 18 to 19.
In the domestic market, the purchase and processing of seed cotton in 2020/21 has basically ended, and lint sales are faster than in previous years. According to data from the National Cotton Market Monitoring System, as of March 5, the national lint cotton sales rate was 73.6%, an increase of 21.4 percentage points year-on-year and 15.8 percentage points higher than the average of the past four years, of which Xinjiang sales accounted for 72.88%. Luzheng Futures said that downstream textile companies have small commodity inventories, high production profits and high production enthusiasm, which will boost demand for raw materials.
In addition, from a long-term fundamental perspective, against the background of significant progress in epidemic prevention and a loose macroeconomic atmosphere, downstream demand for cotton spinning has recovered well. In the absence of major adverse changes in fundamentals and macroeconomics, Zheng Mian’s room to continue downward is relatively limited. This is reflected in the following aspects:
Changes in area expectations
According to the forecast of the U.S. Outlook Forum report in mid-February , the actual sown area of U.S. cotton in 2021/2022 will remain basically unchanged. In February, the December ICE futures contract rose 8.55% to 84.33 cents/pound, making cotton the most eye-catching agricultural product in February. Therefore, the market believes that the US cotton planting area in 2021 may be higher than the 12 million acres predicted by the USDA Outlook Forum.
Domestically, in December 2020, according to the survey results of the China Cotton Association, the area of intention to plant cotton nationwide decreased by 2.17% year-on-year, of which Xinjiang cotton farmers’ intention to plant cotton decreased by 0.85%. As the spot price of domestic cotton futures rises further, the intention to plant cotton has increased. According to a special survey by the Xinjiang Development and Reform Commission, the average cotton planting area per household in Xinjiang is expected to increase by 1.45% in 2021 compared with the previous year.
The March US Farmers Report is overall neutral to bullish
From the March US Farmers Report Judging from the above, the data is bullish. In 2020/2021, global cotton production is estimated to be reduced by 180,000 tons, of which the decline in U.S. cotton yields has led to a reduction of 55,000 tons in total production; global cotton consumption is estimated to increase by 55,000 tons, with the main increase coming from Pakistan and Southeast Asia. Region; global cotton ending stocks were reduced by 249,000 tons, mainly benefiting from reductions in ending stocks in India, Brazil, the United States and Brazil. Among them, the ending inventory estimate of the United States was reduced by 22,000 tons mainly due to a decrease in production; the ending inventory estimate of India was reduced by 152,000 tons due to an increase in export estimates; and the ending inventory estimate of Brazil was reduced by 110,000 tons due to a decrease in output.
This month’s US Farmers Report maintained China’s supply and demand forecast unchanged from last month.
On the day the US Farmers report was released, ICE cotton futures fell by the limit. On Tuesday, ICE cotton futures plummeted between 3 cents and 4 cents. Before the release of the US Farmers report, cotton futures had already plummeted by about 3 cents. According to market analysis, the bullish US Farmers report and the benefits of the US government’s US$1.9 trillion fiscal stimulus plan were basically fully released, which led to adjustments in speculation and positions. ICE US cotton has fallen from its high level since the end of February, with the continuous contract falling from a maximum of 95.6 cents/lb to around 85 cents.
Domestic downstream demand has recovered well
In the third quarter of 2020, the domestic cotton spinning PMI value hit the highest level in the same period in recent years. This peak season The phenomenon continued in January this year. According to relevant data, the cotton spinning PMI in January was 60.18, the highest level in the same period in recent years, an increase of 10 percentage points year-on-year, and 13 percentage points higher than the average of the same period in the past three years.
In terms of exports, in the first two months of this year, domestic textile and apparel exports remained optimistic. The latest data shows that from January to February this year, my country’s cumulative export volume of textile and clothing was US$46.19 billion, a year-on-year increase of 55%. Among them, the export volume of textile yarns, fabrics and their products was US$22.13 billion, a year-on-year increase of 60.8%. Clothing and clothing The export volume of accessories was US$24.05 billion, a year-on-year increase of 50%.
During the Spring Festival, the COVID-19 epidemic across the country was effectively controlled, there were basically no barriers to people’s logistics, and the rate of employees in various employment units returning to work on time was high. On the one hand, the downstream demand for yarn and gray fabrics is good; on the other hand, there are sufficient personnel on duty, and the operating rates of yarn mills and cloth mills are rising rapidly. As of this Wednesday, the yarn and gray fabric start-up load index has risen to 64.4 and 65.2, an increase of 3.8 and 11.2 percentage points respectively from 2 weeks ago, which is at a high level in recent years. Due to good downstream demand, finished goods are shipped smoothly and inventories remain low. As of Wednesday, the yarn and gray fabric inventory indexes were 8.5 days and 17.7 days respectively., at a low level in recent years.
The price difference between domestic and foreign cotton exceeds the standard
After the Spring Festival, domestic cotton futures prices rose rapidly, driving cotton spot prices higher. From the first trading day after the holiday to the end of February, the main contract of Zheng cotton increased by about 1,000 yuan/ton, and the 328 cotton spot price index increased by about 500 yuan/ton. During this period, the CotlookA index showed a volatile trend, with the ICE US cotton continuous contract rising first and then falling. The inconsistent pace caused the price difference between domestic and foreign cotton to rebound significantly during this period. The price difference between the 328 cotton price index and the imported cotton (M) price index with sliding quasi-tax port delivery price quickly rose from -60 yuan/ton to 960 yuan/ton, and has maintained this position so far; the price difference has increased from 90 yuan/ton under 1% tariff. The price per ton jumped to around 1,200 yuan/ton.
According to the formula for calculating the price difference between domestic and foreign cotton published in the Announcement of the State Administration of Grain and Material Reserves and the Ministry of Finance (No. 2, 2020), on March 10, the price difference between domestic and foreign cotton was 1,850 yuan/ton. , higher than 800 yuan/ton for three consecutive trading days, and the cotton rotation cannot be started for the time being. According to the announcement, the cotton rotation time for this round is the national legal working days from December 1, 2020 to March 31, 2021.
Summary
There are no adverse changes in the long-term fundamentals of cotton; cotton futures prices at home and abroad are rising rapidly. After the rise, the superimposed profits were exhausted, and the price fell significantly. At present, the downstream demand for cotton spinning at home and abroad has recovered well, which has strong support for cotton prices and the room for decline is limited. In addition, the hemisphere will gradually enter the planting period, and weather changes may once again become the focus of capital pursuit. </p
