On December 13, China and the United States successively issued statements announcing the conclusion of the first phase of the economic and trade agreement. The global financial market, stock and bond market, and commodity futures market were filled with joy. Investors’ concerns were significantly alleviated. ICE cotton futures, Zhengzhou The bullish tone of cotton and cotton-related companies has become the main tone. Coupled with the positive weekly report on US cotton exports released by the USDA, the main ICE contract has undoubtedly exceeded the 67 cents/pound mark.
However, as the USDA monthly report continues to significantly reduce the 2019/20 US cotton production and ending stocks and the Sino-US trade negotiations have made considerable progress, the increase in ICE is obviously much lower than expected. Funds, Bulls and cotton companies showed great restraint, and the main contracts did not quickly open the round-number thresholds such as 68 cents/pound or 70 cents/pound (U.S. planters believe that cotton prices must return to 75 to 80 cents per pound to be sustainable. (Only when this price is reached can profits be made, otherwise planting in 2020 will be greatly restricted); some international cotton merchants and trading companies also believe that ICE’s performance is not strong. What are the reasons?
First, judging from the statements issued by China and the United States, the content, wording, and focus of the two statements are relatively obvious. The difference is somewhat “self-singing”. Therefore, although the text of the agreement has been agreed upon, subsequent legal procedures and signatures from both parties still need to be passed, and there are still certain variables. In particular, the United States has changed its dispute settlement from a unilateral enforcement mechanism to “Dispute settlement mechanism”, once China fails to increase imports of U.S. goods as soon as possible or the import volume does not meet U.S. requirements (or China believes that U.S. tariff reductions and exemptions are too slow), it is likely to lead to a “comeback” in negotiations;
Second, according to the text of the first-phase trade agreement announced by China and the United States, cotton is not mentioned in the scope of China’s imports of U.S. commodities. Therefore, some institutions and traders judge that there are requirements and the expected quantity is limited. On the one hand, China’s domestic The supply of cotton is relatively sufficient, and US cotton is not a commodity in short supply. On the other hand, the price competitiveness of US cotton is not strong, coupled with the decline in the quality of Texas cotton in 2019/20, its attractiveness to Chinese textile companies remains to be seen. In addition, if “market-based” procurement is still adopted, it will have little impact on ICE and Zheng Qi;
Third, the global economic situation will not change due to the progress of Sino-US trade negotiations. For big changes, it will take time for cotton consumption to bottom out, stabilize, and pick up. While the Sino-U.S. trade negotiations are experiencing twists and turns, the United States has opened fire on the European Union, the second largest economy, and will impose additional tariffs on some EU goods exported to the United States. Coupled with global geopolitics and high risks of war, U.S. retail sales increased by 7 in November. The European Union has experienced negative growth for the first time in months and is in dire straits. Therefore, the rebound of ICE will encounter a “high-limit pole” at any time. </p
