Last week, after the UK announced the news of the mutation of the new coronavirus, the market became more worried about the spread and treatment of the new coronavirus. Global capital markets and commodity futures fell to varying degrees. ICE cotton futures fell by more than 3% last Monday, and the domestic cotton futures CF2105 contract hit 14,500 yuan/ton. Judging from the current fundamental data and the historical trend of ICE cotton, the time for cotton’s decline has not yet come, and it may peak in February next year and start a real decline.
Global cotton supply and demand report
It can be seen from the latest USDA December report that global cotton production in 2020/21 is higher than the previous year. A decrease of 1.79 million tons to 24.8 million tons, mainly due to reduced cotton production in the United States and India; based on expectations for the subsidence of the new coronavirus, USDA significantly increased global consumption to 25.17 million tons. After this adjustment, global cotton supply and demand The relationship turned into a shortage of 375,000 tons.
We use the global cotton production and consumption gap to observe the supply and demand balance. The adjustment in December is the first time it has been negative since it was positive in June 2019. value, indicating that the period of excess supply has passed. Judging from the impact of the historical production-consumption gap on futures prices, from April 2015 to June 2017, cotton futures prices rose sharply after bottoming out. From May 2018 to May 2019, cotton prices continued to rise for most of this period. It is a high-level consolidation. Domestic cotton prices rose sharply to more than 18,000 yuan/ton in May 2018. The decline in May 2019 was actually mainly caused by the intensification of Sino-US trade friction, which was a “black swan” event. Then the global cotton surplus began, and cotton fell sharply. The COVID-19 epidemic accelerated cotton’s bottom. It can be seen from the monthly supply and demand historical data that the production and consumption gap has a strong guiding significance for the long and short reversal of cotton futures prices. Of course, the gap between supply and demand cannot predict the extent of cotton’s rise and fall, but it is difficult for cotton to fall further under the shortage balance sheet.
The impact of the epidemic on cotton has diminishing marginal effects
On December 21, the main reason for the decline in cotton prices was the discovery of a mutated new coronavirus in the UK, and concerns about its spread The speed is faster, and the impact of the new coronavirus on cotton in March this year is still fresh in our minds. Global COVID-19 vaccine trials have achieved good results, with an efficacy rate of over 90%. There is no evidence that the current vaccine has no effect on mutated COVID-19 viruses. Judging from the number of new deaths from the new coronavirus in the United States, it has dropped from the initial three thousandths to one thousandth, indicating that with proper treatment and improved human immunity, the marginal effect of the new coronavirus on the people is diminishing. Most commodity futures and Global stock markets have hit new highs since the outbreak.
The tight supply of U.S. cotton supports prices
ICE cotton futures prices began to rebound after bottoming out at the end of March. On November 23, they had recovered from the peak since the epidemic. All declines are followed by continued price increases. Among them, the accelerated sales of U.S. cotton is one of the important factors supporting the rise of cotton. China is fulfilling the first phase of the agreement and is the main force in purchasing U.S. cotton. According to the weekly cotton sales report released by USDA, the proportion of U.S. cotton sales in 2020/21 has reached 80%, which indicates that in the remaining eight months of this year, only 20% of U.S. cotton spot sales will be sold. This year’s futures contract will Clearly supported. The spreads of the March, May and July contracts of ICE cotton futures are positively distributed, and the 2112 contract price is about 5% lower than the 2107 contract. Under this futures spread structure, ICE cotton futures have continued to be bullish in recent months.
Funds continue to increase their long positions in ICE cotton
Funds began to switch their positions in ICE cotton to net long positions in June, and then continued to increase their positions in cotton. Futures prices also gradually rose. Between October 27 and November 10, funds reduced their long positions, and the price fell to a certain extent. However, soon the funds increased their long positions again, and ICE cotton prices also rose in shock. As of December 21, the fund’s net long orders in cotton reached 84,800, the most since October 2018. In the past five years, the fund’s net long orders in ICE cotton futures have reached more than 120,000. In March 2017, January 2018, and June 2018, the fund’s net long orders exceeded 120,000. It can be considered the fund’s largest net long position in cotton. Open interest. If ICE cotton futures fall, there is still room for the fund to increase its net long positions. Therefore, the futures price is still bullish when the fund holds a huge net long position. Judging from the historical trends in the past few years, in most years, ICE cotton futures prices did not peak until February.
Although the global epidemic is still severe, the gradual popularization of the new crown vaccine has given the market hope of ending the epidemic. The demand for cotton will be more elastic, and the smooth sales of US cotton support ICE Cotton futures prices, driven by the rise in international cotton prices, domestic cotton is expected to fluctuate higher and once again challenge the previous high. </p
