: On January 15, local time, through the joint efforts of the economic and trade teams of China and the United States, and on the basis of equality and mutual respect, China and the United States officially signed the first phase of the economic and trade agreement in Washington, the capital of the United States; plus so far The cumulative processing volume and public inspection volume of Xinjiang cotton in 2019/20 are still significantly higher than the same period last year, leading to a sharp narrowing of expectations for production cuts. Some institutions and investors judged that the benefits were about to be exhausted and closed their positions at profits. Therefore, the main contract of ICE cotton futures fell. Breaking 71 cents/pound, the bulls retreated to the pressure level of 70 cents/pound (it once opened to 70 cents/pound during the session).
Due to the limited positive support from short-term cotton fundamentals, the conclusion of the second round of Sino-US trade negotiations is likely to be postponed until after the US presidential election in November, and the impact of trade frictions and geopolitical tensions on the recovery of the global economy. Due to rising uncertainty and other factors, there is a high probability that the main ICE contract will test back to 68-70 cents/pound and gain momentum for a second rise.
Analysts believe that ICE futures are still bullish in the medium and long term, with the main contract breaking 75 cents/ pound, 78 cents/pound is only a matter of time. The main reasons are as follows:
Firstly, due to the needs of the election, Trump is likely to accelerate the second and third phases. The process of US trade negotiations. Trump agreed to suspend plans to impose new tariffs on Chinese imports, reduce the additional tariffs on China that took effect on September 1 last year from 15% to 7.5%, and remove China from the list of “currency manipulators.” This shows that the United States is also more eager to promote trade negotiations;
Secondly, after the first phase agreement takes effect (one month after signing), China will start a consultation on U.S. cotton in 2019/20. Prices and contracted purchases stimulated the ICE market to stabilize and rebound. Considering that the United States will set a 90-day observation period for the implementation of the agreement, the two-year average import scale of agricultural products is US$40 billion, and the signed export of US cotton in 2019/20 is “accelerating”, China may take other measures to promote US cotton purchases;
Third, the Australian cotton output in 2019 was halved, the quality of Indian cotton was not satisfactory, and the price of Brazilian cotton was high, which paved the way for Chinese companies to sign contracts with US cotton. Judging from the survey, due to the increased recognition of the quality and spinnability of Brazilian cotton by yarn mills in Vietnam, Indonesia, Bangladesh, Pakistan and other countries; coupled with factors such as the high cost of Brazilian cotton and farmers’ price support, the recent 1/2 /The quotation of Brazilian cotton for March shipping date is significantly higher than that of US cotton. For example, on January 16, international cotton merchants’ SM 1-1/8 Brazilian cotton quotations were concentrated at 79.75-80.75 cents/pound (1/3 month shipping date, CNF, strong 28GPT), while US cotton ME 42-4 (42- 3. The quotation of 41-4, strong 28GPT) is only 73.4-74 cents/pound, which is more cost-effective than Brazilian cotton;
Fourthly, global agricultural products will face a large increase in 2020 space. As the global economy bottoms out and rebounds, accelerated GDP growth, reduced production and inventory lead to insufficient supply, a lower U.S. dollar index, and the “troika” of interest rate cuts by the Federal Reserve, the “value depression” of global agricultural products is expected to continue to be filled in 2020. </p
