As Zheng cotton peaked and fell back in late October, the main contract price of CF2101 began to be inverted with the far-month contract price. Some research institutions and cotton-related companies said that this situation has not been seen for a long time, and the warehouse receipts Finance, warehousing, insurance and other costs have been swallowed up, and the anxiety of cotton processing enterprises in Xinjiang about whether they need to move warehouses far away and delay hedging continues to rise.
Why did Zheng Cotton’s January-May contract suddenly “hang upside down”? Institutions, cotton-related companies, and speculators have various opinions and speculations. The author believes that there are no more than three points:
First, bulls believe that industrial companies do not have enough warehouse receipts to deliver in January. First of all, indicators such as fiber length, horse value, and breaking strength of Beijiang machine-picked cotton in 2020/21 are very unsatisfactory. The proportion of warehouse receipts that can be generated in January has dropped significantly compared with previous years. Even if medium and low-quality Xinjiang cotton meets the standards for generating warehouse receipts, the discount will be relatively large, and cotton processing companies may not be willing to make sacrifices.
Secondly, because the purchase price of seed cotton opened high before late October, regardless of basis sales or spot price sales, machine-picked cotton can be hedged and the sales window period is relatively short, so ginners are reluctant to sell. The sentiment of betting on rising prices is strong, and the quantity of spot purchased by cotton traders and futures companies is also low, resulting in low warehouse receipts for hedging.
Thirdly, the number of Zheng cotton warehouse receipts in September and October dropped sharply compared with the same period in 2019, leaving little room for short sellers to move forward. According to statistics, as of October 30, there were 4,441 Zheng cotton warehouse receipts, which was lower than the 5,250 in the same period in 2019, a decrease of 54.17%. With the inability to generate new cotton warehouse receipts in 2020/21, old warehouse receipts are also in danger.
Fourthly, the “inversion” of cotton futures results in Zheng cotton’s near-month contract being strong, while the far-month contract is relatively uncertain. Judging from the survey, as the CF2101 contract price fell below 14,500 yuan/ton, the quotations of the “Double 28” machine-picked cotton in the supervision inventory of Beijiang are concentrated at 14,550-14,700 yuan/ton (the fixed price is mostly around 14,600 yuan/ton) , even if the costs of margin, warehousing, finance, etc. are not considered, the price difference between futures and current prices reaches 200-300 yuan/ton.
Fifth, the second wave of the COVID-19 epidemic is coming one after another. After the U.S. presidential election, Sino-U.S. relations are facing greater uncertainty. In addition, global economic, financial, trade and other risks in 2021 have not only not declined, but have become higher. Rise in 2020. Some economists and institutions believe that although “black swans” will fly out frequently in 2020, it may not be the worst year. </p
