Recently, there have been obviously more inquiries about the cotton market, and a lot of funds from outside the industry are paying attention. I just held an online cotton sharing meeting to briefly summarize the issues of market concern. If you want to ask for operational advice, it is – “You can put the cotton in the optional box, and you can do your homework first.”
1. Reasons for the sudden surge in cotton prices after the National Day: New cotton harvest + downstream demand exceeded expectations, and the market fell into a “positive feedback” cycle.
2. Why has the 1/5 price difference of Zheng cotton become positive recently? In the short term, the main reason is that the futures and current prices are inverted, the basis is too strong, and the warehouse receipt cannot be implemented. But the underlying reason is the mismatch of speculative stocks in the industrial chain. The early textile profit gap drove textile companies to take the initiative to destock. Spinning companies and weaving companies have long adopted a buy-as-you-go strategy, and the destocking of intermediate stocks is relatively clean. The sudden better-than-expected improvement in the downstream industry caused the industrial chain to passively destock. The strengthening of the basis spread and the strengthening of the monthly spread reflect the problem of tight short-term supply.
In history, a similar phenomenon has occurred in the cotton unilateral bull market: “First the basis strengthened, and then the monthly difference became positive.”
Will the market experience a similar trend this year? It remains to be seen whether the improvement in downstream demand is sustainable. Is the supply conflict short-term or long-term, partial or overall? Is there a way to resolve it? Does the resolution process need to be driven by price?
3. The impact of current market hot spots on cotton prices: 1) The United States’ ban on Xinjiang cotton: The United States has successively implemented measures against China two years in advance. Various options, a complete ban is currently unlikely, and the precise “point-to-point” hit list will be further expanded; 2) Second outbreak of the epidemic: At present, the number of new people has reached a new high, but the case fatality rate continues to decline, and medical resources will not be squeezed, which will temporarily affect Limited; 3) U.S. election: On the issue of China, the two parties are highly consistent, and relevant bills have been passed quickly. However, the trade war in the form of mutual tariffs is not expected to continue to expand, and China will continue to purchase large amounts of U.S. agricultural products. The market currently reflects optimistic expectations for fiscal stimulus policies. In the later period, it will mainly focus on tax policy and foreign policy, which may have an impact on the exchange rate and China-related economic partnerships.
4. Is it possible for cotton prices to rise in the market outlook? From the perspective of the inventory cycle, the cotton industry chain is at the end of the “active destocking” cycle, and cotton prices are already in a relatively sensitive state. The rapid rise in cotton prices in October is the best reflection. production cycle. At present, under the influence of low profits, the textile industry’s production capacity is being reduced. This year, the operating rate of cotton textiles continues to be lower than last year. However, this reduction process is not thorough enough. Once profits recover, the operating rate rises again. If production capacity is completely cleared, it will be easier for a big market to occur.
Economic cycle. It is expected that there will be a recovery, but the actual performance depends on the performance. The market still has doubts. If two of the inventory cycle, production capacity cycle, and economic cycle can resonate, then the probability of a bull market will be high. </p
