On June 1, 2004, cotton futures were listed on the Zhengzhou Commercial Exchange, becoming the first new product to be listed for trading in my country’s futures market after years of clean-up and rectification. Over the past 16 years since its listing, the overall cotton futures market has been operating steadily and the market has developed Good, futures prices have become the industry benchmark. In particular, this variety plays an active role in serving the economic development of major cotton-producing areas such as Xinjiang, promoting the maturity of my country’s cotton textile industry, and serving the cotton target price reform. The price influence of China’s cotton futures is also increasing in the global market.
China is the main producer and seller of cotton. It is also a major importer of cotton and a major exporter of cotton textiles and clothing. It occupies an important position in the world trade of cotton raw materials and finished products. Cotton is an important strategic material related to my country’s national economy and people’s livelihood, with a long industrial chain and a large number of employed people. Such a huge market requires risk management tools to serve the steady operation of industrial enterprises, improve the resilience and strength of the entire industry, and promote the industry to continue to mature, and the birth of cotton futures has been given precisely such a role.
From the data point of view, the cotton futures market has continued to expand in scale in the past 16 years, from an average of about 20,000 lots per day in 2004 to an average of more than 500,000 lots per day in 2020. Among them, in 2011, the annual trading volume of cotton futures reached 139 million lots, ranking second in the global commodity futures trading volume.
Since 2014, my country has begun to implement cotton target price reforms. The degree of cotton marketization has continued to increase, and the activity of cotton futures has further increased. Taking this year’s data as an example, in the first half of 2020, a total of 54.4133 million cotton futures were traded, with an average daily turnover of 465,100, a year-on-year increase of 115.24%; the average daily position was 593,300, a year-on-year increase of 61.99%. In addition, cotton industry enterprises actively participate in the futures market. In 2019, the number of cotton futures corporate customers exceeded 6,200, and the position ratio exceeded 50% all year round. In 2019/2020 alone, the cumulative registration volume of cotton futures warehouse receipts was 33,980, equivalent to 1.427 million tons of cotton, accounting for approximately 1/4 of my country’s annual cotton production.
Industry insiders believe that active trading in the cotton futures market provides a basis for effective price discovery and risk avoidance functions. Cotton-related companies are deeply integrated into the futures market. Upstream processing companies, traders and downstream textile companies have all used the authoritative prices of the futures market to guide production, processing, trade and other business activities to varying degrees.
Since the launch of the cotton target price reform, the price fluctuations in the cotton spot market have gradually increased, and cotton-related companies have increased their demand for hedging in the futures market. Cotton futures, by virtue of their price discovery function, help industry entities avoid risks. Providing a powerful tool, cotton futures provide timely reference information to industrial enterprises, helping enterprises to effectively avoid market risks, and futures prices have become an industry benchmark.
It is understood that since the listing of cotton futures, its price trend has always maintained a high correlation with the China Cotton Price Index CCIdex3128B. Especially since 2014, the correlation between futures and spot prices has remained above 0.9, and the price discovery function has been functioning efficiently. When market supply and demand imbalances occur and industrial policies change, cotton futures prices can respond accurately and quickly, providing scientific judgment for market entities. The cotton market situation provides an effective reference and becomes a “barometer” reflecting the supply and demand situation of the cotton industry.
Huang Hongyu, president of Henan Tongzhou Cotton Industry Co., Ltd., told a reporter from Futures Daily that cotton futures have become the pricing basis for spot trade. Spot companies have widely carried out point trading and basis trade based on futures prices to stabilize raw material costs. and product selling prices to improve corporate operating efficiency. “In the main producing areas of Xinjiang, the basis trading model combining futures and spot prices has gradually replaced the traditional ‘fixed price’ trading model and has become the mainstream of the cotton trading market.”
As cotton futures continue to mature, its The international influence of prices is also gradually increasing. On the one hand, cotton futures prices remain closely linked to the international market. In 2019, the correlation coefficient between the cotton futures prices of Zhengzhou Commodity Exchange and the Intercontinental Exchange was 0.91. Cotton futures prices are very sensitive to factors affecting the international market, and the impact of the Chinese cotton market on the international cotton market is also increasing. On the other hand, the market size is close to the international futures market. In 2019, after weight conversion, the cotton futures positions of Zhengzhou Commodity Exchange have reached 0.7 times of the cotton futures positions of Intercontinental Exchange, and the trading volume was 1.77 times.
In addition, large international cotton merchants such as Louis Dreyfus and Olam have been deeply involved in Zhengzhou Commodity Exchange cotton futures for a long time. Through diversified methods, these companies use the price indicators and risk management functions of the futures market to provide their Spot trading services. The average daily positions of Louis Dreyfus and Olam are both in the top 10 in the Zhengzhou Commodity Exchange’s ranking of average daily positions of cotton enterprise legal persons. In this regard, some analysts also believe that a good futures and spot foundation creates favorable conditions for cotton futures to better exert their price influence in the international market. This is even more extraordinary for a huge whole industry chain market like our country. meaning. </p
