Deep in the heart of cotton investor Liu Dahua, he has been harboring a dream in recent years, that is, given the pattern of insufficient production and demand in the domestic cotton market, can it be boosted by accidental factors? The cotton market has once again experienced a rapid rise similar to that caused by disaster weather in the production areas in mid-May 2018.
After dinner yesterday, watching the opening time of 21 o’clock approaching, Liu Dahua’s friends A message was sent to him that 500,000 tons of Xinjiang cotton would be transferred from the state cotton reserve. The State Administration of Grain and Material Reserves and the Ministry of Finance jointly issued an announcement yesterday evening stating that in order to strengthen the management of central cotton reserves, further optimize the reserve structure, and improve the quality of reserves, they decided to rotate some Xinjiang cotton. The rotation period is the national statutory working days from December 1, 2020 to March 31, 2021. The total quantity is about 500,000 tons, and about 7,000 tons are listed for bidding every day.
Although the news that the state reserve cotton has received 500,000 tons of cotton is in line with market expectations and is unlikely to have a substantial impact on domestic cotton prices, it still makes holders Liu Dahua, who had many long orders, felt a sense of surprise in his heart. It seemed that the signal that cotton prices were rising step by step had been sounded.
“In recent years, many people in the domestic cotton market have been optimistic about future prices, believing that under the premise of insufficient inventory and limited future expansion of planting area, cotton prices can easily exceed 15,000 yuan. / ton mark, and will move towards the 17,000-18,000 yuan/ton mark, and will eventually stand above the 20,000 yuan/ton mark.” Wei Jiajun, a cotton trader in Xinjiang, told the Futures Daily reporter that in 2018, under the circumstances of strong market demand, in In the early days of cotton planting, disastrous weather occurred in some producing areas that was not conducive to cotton sowing and cotton seedling growth. In addition, the state reserve cotton inventory dropped significantly at that time, which triggered a simultaneous increase in domestic cotton spot prices. Among them, the price of the main cotton futures contract rose from 12,000-13,000 yuan/ton to around 20,000 yuan/ton. Subsequently, domestic cotton prices gradually fell due to the delay in the rotation of cotton from the state reserve and the increasing quantity of imported cotton. Since then, many cotton practitioners, like Liu Dahua, have cherished a dream that the cotton market will reappear in 2018.
According to Wei Jiajun, after the launch of new seed cotton this year, the purchase price of seed cotton in the main producing areas is getting higher day by day. The production capacity of ginners is expanding and the intervention of many new market entities continues. Pushing up the price of seed cotton, the purchase price of machine-picked seed cotton in some production areas once exceeded 7 yuan/kg. The cost price of lint cotton calculated from this is 15,300-15,500 yuan/ton, which is higher than the futures price of Zheng cotton in the same period. At this time, although the cotton downstream industry is having difficulty surviving due to factors such as the COVID-19 epidemic, and the demand for cotton is not strong, this does not stop the market from growing bullish sentiment, which was ultimately triggered by a temporary improvement in downstream orders during the National Day holiday. During the wave of rising cotton prices, cotton yarn prices also performed strongly during the same period.
“The state cotton reserve will receive 500,000 tons of Xinjiang cotton, which will definitely boost cotton prices.” Liu Dahua waited for the opening time at 21 o’clock with good thoughts. What the market gave him was not a surprise, but a oscillating downward night market trend. As of the closing of last night’s trading, Zheng Cotton’s main 2101 contract fell by 335 yuan/ton, a decrease of 2.28%.
When market procurement demand is increasing and downstream industry demand is showing signs of recovery, why did Zheng cotton futures prices stop rising and decline?
The person in charge of a ginning factory in Korla, Xinjiang, told reporters that the current cotton harvest and seed cotton purchase in northern Xinjiang have come to an end. There is not much seed cotton on the market, and most of the ginning is Flower factories have reduced their enthusiasm for buying seed cotton, causing the purchase price of seed cotton to fall by 0.1-0.2 yuan/jin. For example, if a ginning factory plans to purchase 20,000 tons of seed cotton and has purchased 18,000 tons so far, then the remaining 2,000 tons can be harvested or not. Naturally, the cotton market price will lose a large driving force to push up. It is understood that 70% of the local cotton and 80% of the Corps cotton around Northern Xinjiang and Korla have been purchased, and some seed cotton is still on the market in Aksu and Kashgar in Xinjiang. The main reason is that the temperature here was relatively high in the early stage, and some cotton farmers postponed it. The timing of spraying defoliants will naturally delay the launch of seed cotton here. The current purchase price of seed cotton is 6.5-6.8 yuan/kg.
“In the early stage, when the purchase price of seed cotton opened high, some industrial enterprises carried out hedging operations for raw material procurement in the Zheng cotton market in order to obtain enough production raw materials in time. It is estimated to be around 12,800 yuan/ton. After the cotton price rose later, these long orders made relatively substantial profits in the short term. At present, these industrial enterprises took into account that there were no major positive themes in downstream demand, so they settled in time. This may be the main reason why the State Reserve’s cotton rotation of 500,000 tons cannot play a positive role.” Wei Jiajun said that although it is difficult to find big negative themes in the market except for the negative factor of sluggish downstream demand, cotton prices are still oscillating. It has gone down, which shows that market sentiment also plays a greater role in the rise and fall of cotton prices in the short term.
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