Zheng Mian challenged Wanqi Pass “Cotton is like gold, buy it and cherish it”
After the Spring Festival, cotton started to rise and rise all the way, which can be said to be a price every day. Zheng Cotton climbed to another peak today after a short rest yesterday. The main 2105 contract rose to a maximum of 17,080 yuan/ton, setting a new high of two and a half years. ICE cotton futures made a strong upward move, breaking out of the “ten consecutive positive” market and also rising to a two-and-a-half-year high. In this regard, textile people say: Cotton is like gold, buy it and cherish it.
The cotton market is in a turbulent situation, what is the driving force?
[Xu Liang, Manager of the Agricultural Products Department of Shanghai East Asia Futures Research Institute]: Recently, both domestic and foreign cotton have experienced large declines. For the increase, we believe that the driving force is mainly due to the market’s strengthening of demand expectations. Under the current macroeconomic background, commodities represented by crude oil and copper have continued to rise sharply. The rise of US cotton is based on the expectation that supply will shrink in the future and demand will continue to increase; due to March In the subsequent spring planting in the United States, the sharp increase in corn and soybeans may squeeze some cotton arable land, and future supply revenue is expected to be strong; China’s purchase of US cotton has grown at the fastest rate in history, and US cotton continues to be destocked. The rise in domestic cotton is mainly driven by rising import costs. Currently, the difference between the sliding tax and the 1% tariff is minimal. Import costs have risen sharply, and domestic futures and spot prices have risen simultaneously.
[He Meng, agricultural product analyst at Huaan Futures]: There are many factors driving up foreign cotton prices recently: the impact of the global epidemic Gradually subsided, the demand for cotton has increased significantly as the textile industry recovers; the US$1.9 trillion fiscal stimulus plan promoted by Biden after taking office has pushed up the commodity market, and inflation expectations have pushed up cotton prices; the new season of US cotton planting is about to begin, and both NCC and USDA predict This year’s sown area has been steadily declining compared to last year. Due to drought conditions in some production areas, the land is no longer suitable for cotton sowing, which has made investors more enthusiastic about going long.
The strong trend of ICE cotton during the Spring Festival boosted the domestic cotton market, leading to a higher opening after the holiday. On New Year’s Eve, the heads of state of China and the United States had a phone call. There are also signs of improvement in trade relations between the two countries. Moreover, the Chinese market is an important part of the global textile industry. In the short term, the internal and external markets are expected to continue to resonate.
[Li Ying, Cotton Researcher at Anliang Futures]: The recent strong upward trend in external cotton prices is mainly driven by both the capital side and the supply and demand side. beneficial effects. In terms of funds, Biden’s 1.9 trillion bailout bill passed the House Budget Committee, and the monetary environment is expected to be loose. As of the week of February 16, the net long positions in cotton held by hedge funds and large speculators increased to 92,006 lots, continuing to set a new record of two lots. Year-and-a-half high, market sentiment is optimistic. In terms of fundamentals, U.S. cotton exports are performing well. The U.S. cotton export contract volume this year has reached 92% of the USDA forecast, and the average in the past five years is 80%. The strong export performance has supported the upward trend in external prices. In addition, the recent USDA Cotton Outlook Forum The released data for 21/22 show that the expected supply of U.S. cotton has declined, total demand has increased, and the ending inventory and inventory-to-consumption ratio have declined. The ending inventory has dropped to the lowest level in the past five years, which has also formed a positive driver for external prices.
The strong performance of foreign cotton prices has provided support to domestic cotton prices. On the one hand, as the import price of foreign cotton continues to rise, the price difference between domestic and foreign prices has gradually dropped to around the critical line of purchase and storage of 800 yuan/ton. If the purchase and storage can be successfully opened, it will help reduce the circulating inventory in the market and ease the pressure on cotton supply. On the other hand, as the price of imported cotton rises, import profits decline. The estimated import profits of U.S. cotton under the 1% tariff have fallen back to near the break-even line. In 2020, U.S. cotton will be my country’s largest cotton import volume. Due to my country’s cotton supply and demand this year The gap still exists and there is a certain rigid demand for imports. Therefore, the price of foreign cotton imports is expected to provide some support for the spot price of domestic cotton.
Ask: What is the fundamental support behind the strong rise?
[Xu Liang, Manager of the Agricultural Products Department of Shanghai East Asia Futures Research Institute]: Domestic lint cotton inventories dropped month-on-month after the holiday; judging from some survey data, the overall decrease was 4% compared with the previous week. -6%; China began to enter a destocking state in February. Domestic commercial inventories as of January were approximately 4.42 million tons, a month-on-month decrease of 25,000 tons. According to seasonal patterns, domestic commercial inventories also began to be destocked from February to August.
[He Meng, agricultural product analyst at Huaan Futures]: The inventory of finished products was already at a low level before the holiday, and this state has continued. Until now. Due to the unsatisfactory employee arrival situation after the holiday, although the operating rate has rebounded significantly, it has not yet returned to normal production levels. Some textile companies have placed orders until May, and yarn shipments are good. It is expected that the inventory of finished products will increase in the future. Stay low.
[Anliang Futures Cotton Researcher Li Ying]: The current domestic finished product inventory is at a relatively low level. According to research data from China Cotton Network, yarn inventory in sampled companies dropped to 20.8 days in early February.Sales volume is 3.5 days lower than the same period in the past three years. Gray fabric inventory is 39 days of sales, 7.4 days lower than the average level of the past three years. As the country advocates the policy of celebrating the New Year in situ this year, the mobility of personnel has been reduced, and textile enterprises have made rapid progress in resuming work after the holiday. According to data from the Cotton Association, the current operating rate of cluster yarn companies has reached 90%, and corporate orders are abundant. The start-up of cluster weaving companies is slightly lower than that of yarn companies, but most companies also start operations before the tenth day of the first lunar month.
Ask: How long can the driver last in the face of the market outlook?
[Xu Liang, Manager of the Agricultural Products Department of Shanghai East Asia Futures Research Institute]: The rise of Zheng cotton is more driven by rising costs, and the domestic fundamentals have not shown a strong driving force. On the one hand, domestic inventories are generally high, and on the other hand, domestic price differences do not show a strong positive trend. Against the backdrop of the current strong upward trend in overall commodities and improving macroeconomic expectations, a pullback is still an opportunity to buy on dips. The development of the market in the later period mainly focuses on changes in macro expectations, such as the Federal Reserve’s monetary policy, the intensity of continued easing, the trend of crude oil and other commodities, etc. Secondly, pay attention to the changes in the area of US cotton during the spring sowing period in the United States. If there is a sustained reduction in production, it will be beneficial to the long-term increase in cotton prices. Third, we must pay attention to whether the later demand can fulfill current expectations, otherwise it will be easy for the market to recover as expected. The current price carries too many macro expectations and atmosphere. There is no problem in the bullish direction in the medium and long term, but we must be cautious about the risk of correction caused by rising too fast.
[He Meng, agricultural products analyst at Huaan Futures]: In the medium to long term, Zheng Cotton’s pace of shifting its focus remains unchanged , it is normal for a short-term correction to occur. Against the background of consumption recovery and inflation expectations, Zheng Cotton does not have the conditions for a sharp decline. Subsequent investors need to pay attention to the weather in the northern hemisphere production areas and the impact on consumption during the transmission of rising cotton prices to the mid-stream and downstream.
[Li Ying, cotton researcher at Anliang Futures]: Judging from the situation of the industrial chain, the inventory of downstream finished products has dropped to a low level, and the estimated profit of spinning is relatively high, and the spinning enterprises Downstream orders are relatively sufficient. Some companies’ orders are scheduled after the first quarter. Orders from companies with better performance can be scheduled until June. Companies have good expectations for the market conditions in the first half of this year. The post-holiday period is the traditional “Golden Three” consumption peak season. Companies The production power of restocking is relatively high, which is expected to support the price of Zheng cotton. In addition, affected by the loose liquidity overseas, the recovery of global cotton consumption, and the expected tightening of supply and demand, the probability of the external price rising further is higher. The price of imported cotton may anchor the bottom area of domestic cotton spot prices. Therefore, overall, the mid-line domestic Zheng cotton Price performance is easy to rise but difficult to fall. </p
