It is the annual new cotton season, but the performance of the cotton market is not satisfactory. When the phenomenon of ups and downs in Zheng cotton becomes normal, cotton market participants who have experienced huge pains in the first half of 2019, how to avoid risks and achieve profits in the new year has become a must and must-do top priority.
Narrow fluctuations have become the mainstream of new cotton listings
According to statistics, as of November 19, 2019, the average price of grade 3128 lint cotton (gross weight) nationwide was 13,289 yuan/ tons, the closing price of Zheng Cotton’s main 2001 contract was 12,835 yuan/ton, and the main basis difference was 454 yuan/ton. As can be seen from the above figure, since the centralized launch of new cotton nationwide in October, the price of lint cotton nationwide has increased only to a limited extent, crawling slowly within the range of 12,500-13,300 yuan/ton, with a fluctuation range of no more than 6.4%.
Looking back at the same period last year, from October to November when new cotton was put on the market, the national price of 3128-grade lint cotton fell from 16,300 yuan to 15,800 yuan/ton, fluctuating in a narrow range, and the decline was at 3.0%.
If the timeline is extended, from October 2018 to April 2019, the national average price of lint cotton generally fluctuated around 15,700 yuan/ton, even for Zheng cotton with high volatility The main force is also fluctuating within the range of 14,800-15,500 yuan/ton, with fluctuations not exceeding 4.8%.
The domestic cotton futures and spot prices from September 2019 to the present have fluctuated within a range of no more than 600 yuan/ton.
Within such a small price fluctuation space, the role of many operable profit methods will be reduced or even disappear. Even when the cost of seed cotton is high and spot sales are not fast, the cotton enterprises’ Hedging is of little use. This is also an important reason why it is difficult to do professional work in the cotton market this year, and even more difficult to do unprofessional work.
Next, let’s sort out the factors that have caused bottoming and upward pressure and top pressure since the launch of new cotton.
1. The world’s major producing countries have reduced production
According to the USDA report in November, affected by the weather , the cotton production data of the world, the United States, China, India, and Pakistan in 2019/20 have all been reduced. Global production was reduced from 27.166 million tons in October to 26.549 million tons, a decrease of 2.3%.
In recent years, the weather has been good for cotton during the critical growth period from July to August, and the yield increase is expected to be high. However, in September, Xinjiang often experiences various severe weather conditions such as low temperature, wind, sand, rain and snow, which is a serious blow to the critical period of cotton harvest. According to the latest forecast data in early November, various departments and agencies have made reductions in China’s cotton production, showing the industry’s common understanding of the reduction in cotton production across the country this year, especially in Xinjiang. At the same time, some institutions’ Xinjiang research reports in October had higher estimates of Xinjiang’s cotton production reduction, even reaching a year-on-year reduction of more than 20%.
In general, production reduction is an indisputable fact. Due to differences in statistical monitoring calibers, the magnitudes vary. However, given the current bearish external macro-environment and the collapse of the cotton terminal consumer market due to the Sino-US trade war, whether the total production reduction is 300,000 tons, 500,000 tons or even 700,000 tons is of little significance. It’s nothing more than a gimmick for short-term speculation.
2. Domestic supply is loose and inventory is high
From the statistical data of various institutions, in 2019 /China’s cotton opening inventory in 2020 is still at a high level, equivalent to one year’s domestic cotton consumption. Coupled with the high level of cotton commercial stocks that have been left to this day and the domestic reserve cotton stocks, China’s cotton market is still in a situation of loose supply in 2019/20.
According to statistics, as of October 31, the national cotton commercial inventory was 4.9017 million tons, a month-on-month increase of 24.38%, a year-on-year increase of 53.51%, and an increase in the first month of the new cotton year. Cotton industry inventories are at 602,000 tons, down 6.18% month-on-month and 45.53% year-on-year.
Lint processing starts in the new year 2019/20. The national lint processing volume in October is estimated to be about 1.57 million tons. The increase in commercial inventories in October is mainly due to the legacy of the previous year and the accumulation of new cotton.
3. Downstream yarn gray fabric inventory has declined, but it is still not optimistic
The traditional significance of the Golden Nine and Silver Ten The quality of the peak season is insufficient and has twists and turns.
September, the traditional peak season for yarn gray fabrics, started with the easing of Sino-US relations, and sales picked up, especially in mid-to-late September, when the startup speed accelerated. However, the downstream demand of the cotton textile industry is still in a weak state due to the uncertainty of the external environment. According to the survey, the sales situation of yarn and gray fabrics in October was worse than that in September. Only the start-up situation was relatively normal. Manufacturers were still cautious about the replenishment and procurement of raw materials. The digestion of finished product inventory was slow, and some gray fabric companies reduced prices and sold quickly.
As Sino-US relations eased in late October, cotton prices continued to rise, cotton yarn price concessions also narrowed, and yarn sales began to accelerate, but the good times did not last long, Intellectual APECK Conference Cancellation, how to sign the first phase agreement between China and the United States remains unresolved, and there has been no clear positive signal from both sides. The sales of cotton yarn began to be hindered, and the space for profit concessions appeared again.
Considering that the Spring Festival this year has been advanced to late January, when terminal inventory is high and digestion is slow, it is left for everyone toThe actual trading time of the festival will be shortened. If no obvious positive factors appear, yarn may be sold at a reduced price in December, which will suppress the rhythm of the cotton market to a certain extent. The main force of Zheng Cotton may continue to be at 12,600-13,200 yuan/ Oscillate between tons.
Several factors to pay attention to in November and December:
First, the progress of Sino-US peace talks, especially the first phase Whether the agreement can be signed or not, the second batch of tariffs imposed on December 15 will be delayed or cancelled.
Second, the actual implementation and execution price of the national cotton purchase and storage in December.
Third, the mentality of market entities, whether yarn will see a concentration of price cuts and sales.
Fourthly, as the January contract approaches, futures and spot prices gradually move closer, and currently the main players have begun to gradually move their positions to the 2005 contract. </p
