On Tuesday (January 26), the domestic stock market and commodity futures market turned green, and cotton futures also fluctuated lower, falling below the 15,000 yuan/ton round mark. The trend of domestic cotton has been obviously weak recently. Even if ICE cotton prices continue to hit new highs, domestic cotton is not willing to go up. It has not touched 15,600 yuan/ton since January 8. The author believes that factors such as the downward adjustment of ICE cotton, the large price difference between domestic and foreign cotton, and weak demand at the end of the year have restricted the rise in cotton prices.
ICE cotton continues to rise, expectations are getting lower and lower
ICE cotton futures have been rising since early April last year It began to gradually recover. The author believes that there are three factors driving the price to continue to rise: First, the outbreak of the new crown epidemic caused panic in the commodity market. After ICE cotton fell below 50 cents/pound, it ushered in an oversold rebound that lasted until 2020. At the end of September; secondly, under the positive expectations of the new U.S. President Biden in terms of global trade, epidemic prevention and control, and economic stimulus plans, funds continued to add long positions in cotton, and ICE cotton rose from 65 cents/pound to 80 cents/pound. pounds; third, U.S. cotton sales have far exceeded last year. U.S. cotton sales so far in 2020/21 have reached 12.16 million bales, higher than the 11.86 million bales in the same period last year. The current year’s sales volume is equivalent to 86% of the U.S. Department of Agriculture’s export target. %, and the sales progress during the same period in the past five years was 73%.
At present, there is a lack of new themes for the rise of ICE cotton. USDA has lowered US cotton production for two consecutive months. The probability of further lowering in the February report is very small. The market is now The only thing we look forward to is a long-short squeeze market. In the case of tight spot demand, funds continue to go long in front-month contracts, similar to the market situation in the first half of 2018. But the difference is that at the end of January 2018, the net long positions held by funds in cotton reached 120,000 lots, but now it is less than 80,000 lots, and the number of long orders has been reduced for two consecutive weeks. Therefore, the market began to wonder whether ICE cotton could continue to rise, and domestic cotton responded in advance.
Domestic cotton prices are overestimated, and the price difference between domestic and foreign cotton is large
Although in the past two weeks Domestic cotton prices fell and ICE cotton futures remained strong, but the price difference between domestic and foreign cotton remained at a high level. Data from China Cotton Network shows that the price difference between domestic and foreign cotton was 1,214 yuan/ton on January 27, which was still higher than the price difference between purchase and storage of 800 yuan/ton. There are two possibilities for the narrowing of the price difference between domestic and foreign cotton, that is, the domestic increase is smaller than the external market, or the domestic decline is greater than the external market. Either way, the price of domestic cotton is overvalued. Since December 1, 2020, the price difference between domestic and foreign cotton has not reached the start-up conditions in the past two months. If the price difference between domestic and foreign cotton shrinks to less than 800 yuan/ton in the later period, the price of domestic cotton needs to be more than 2% lower than that of foreign cotton, that is, ICE cotton It should rise to 85 cents/pound, while domestic futures prices should remain below 15,200 yuan/ton.
The demand for cotton is weak, and the prices of flowers and yarn are very high.
Domestic cotton was in early October last year. There was a sharp rise due to the concentration of purchasing, but as the demand for cotton yarn gradually cooled down, the sharp rise in futures prices also allowed Xinjiang cotton companies to make profits and increase their efforts to sell cotton. Cotton spinning mills increased their purchases due to improved demand. Mainland cotton spinning companies said that since October last year, cotton stocks have remained at about 2 months, which is enough to meet the demand after the Spring Festival. There is not a strong willingness to buy cotton before the end of the year.
Unlike the recent downturn in cotton prices, cotton yarn prices are high. The price of 32-count cotton yarn in Xinxiang, Henan is 23,000-24,000 yuan/ton, while the cost of cotton is generally 15,000 yuan/ton. , the spinning profit is as high as 2,000 yuan/ton. Due to widespread concerns about the late demand for high-profit overdrafts in the past two months, especially the appreciation of the RMB, the surge in sea freight, and the shortage of containers, profits from overseas orders have been “eaten”, which has affected the enthusiasm of cotton spinning companies to purchase cotton.
With the rise of foreign cotton, the performance of domestic cotton is obviously weak. The price difference between domestic and foreign cotton is large. Cotton import volume in December hit a new high in nearly 4 years. In addition, the demand for the later period is weakening. Worries have restricted cotton’s upside. Unless the epidemic situation at home and abroad improves significantly and orders can be sustained, it will be difficult for cotton to get rid of the consolidation trend. </p
