Since mid-January, domestic Zheng cotton has fluctuated and fallen. Especially after the outbreak of the epidemic abroad, Zheng cotton has shown a unilateral downward trend. The maximum drop in the 05 contract has reached 4,500 yuan/ton, and once fell below 10,000 yuan/ton. mark. This Wednesday, domestic Zheng cotton rose in early trading, with the main contract increasing its positions and increasing volume. It once rose 5% during the session. After more than two months of slumping, has Zheng Mian had an opportunity to bargain?
Global The economy has been affected by the epidemic
The Director-General of the WHO stated at the Extraordinary G20 Leaders’ Summit that the new coronavirus is a global crisis and requires a global response.
The development of the global economy has been hampered by the impact of COVID-19. Goldman Sachs Group said it expects global real GDP to shrink by about 1% in 2020, a larger contraction than the year after the 2008 global financial crisis. Morgan Stanley warned investors that the new coronavirus epidemic is fundamentally disrupting the world economy and that the global economy will fall into recession this year. At the same time, it was also stated that this time will be more serious than the global economic recession in 2001, and the potential damage caused by the impact of the new crown pneumonia epidemic and the tightening of financial conditions will have a substantial impact on the global economy.
Lack of downstream orders
As the epidemic intensifies overseas, many countries With the adoption of measures such as city closures and travel restrictions, textile and apparel consumption has been greatly curbed, and my country is the world’s largest exporter of textiles and apparel. According to the latest statistics from the General Administration of Customs of China, from January to February 2020, my country’s textile and apparel exports were US$29.835 billion, a year-on-year decrease of 20.0%. At present, domestic textile and clothing export orders have been significantly affected, and there have been many cancellations and order delays. Domestic demand has not yet recovered, and some spinning mills have begun to sell off profits in order to reduce inventory. Still, inventories at mills are piling up.
According to relevant statistics, since April, the start-up load index of domestic yarn and gray fabric factories has shown a downward trend, and the finished goods inventory in the same period has been in a state of accumulation. This year’s textile peak season has barely started due to the impact of the epidemic. There is a serious lack of new orders for downstream textile companies, and it is difficult to see significant improvement in the short term, putting great pressure on the operations of textile companies.
New cotton planting intentions are higher than expected, and there may be reductions in the future
According to a report released by the United States Department of Agriculture, the intended cotton planting area in the United States in 2020 is 13.7 million acres, a year-on-year decrease of 1%. The USDA Agricultural Outlook Forum previously estimated that the U.S. cotton planting area in 2020 will be 12.5 million acres. The intended planting area of US cotton dropped significantly lower than market expectations. However, this survey of U.S. farmers’ planting intentions was conducted in the first two weeks of March, and the market believed that the survey data did not fully reflect the epidemic situation. At the end of March, the country officially introduced a cotton target price reform policy to stabilize the domestic new cotton planting area. The results of a nationwide cotton planting intention survey launched by the National Cotton Market Monitoring System in mid-March showed that China’s intended cotton planting area in 2020 was 45.501 million acres, a year-on-year decrease of 5.1%, and the decline was 0.8 percentage points lower than the results of the intention survey in November 2019.
However, this survey of US farmers’ planting intentions was conducted in the first two weeks of March. The market believed that the survey data did not fully reflect the epidemic situation, and expectations were lowered later.
Consumption has also been affected by the epidemic and has been reduced. The US Farmers Report in March lowered its estimate of global cotton consumption by 800,000 bales. Among them, China continues to reduce its consumption estimate for this year by 1 million packages. Affected by the epidemic, China has significantly reduced its consumption estimates for two consecutive months, with a total reduction of 2 million packages. At the same time, US farmers reported in March that they reduced China’s import estimate by 250,000 packages.
When the US Farmers Report was released in March, the impact of the COVID-19 epidemic on global cotton consumption was still in its early stages. As the number of confirmed cases of COVID-19 around the world increased and many countries adopted travel restrictions in response, Due to the COVID-19 epidemic, the U.S. Farmers Report this month is likely to reduce its global cotton consumption forecast.
Comparison of the decline in cotton prices during the 2008 subprime crisis and after the outbreak
During the 2008 subprime mortgage crisis, cotton prices fell sharply from March to November 2008. On the one hand, it is a correction to the previous increase; on the other hand, it may be due to the global economic recession after the subprime mortgage crisis, which affected cotton demand and prices fell.
The U.S. cotton index rose from 49 cents/pound in May 2007 to 95 cents/pound in March 2008. After reaching a stage high, cotton prices The correction weakened and the decline accelerated between July and mid-November, hitting 39.48 cents/lb on November 12, 2008. In 2007/2008, global cotton production decreased by 460,000 tons, and ending stocks decreased by 40,000 tons, but they were at historically high levels, and there were no particularly favorable or bullish changes in fundamentals. Due to the subprime mortgage crisis in 2008, global cotton consumption was affected in 2007/2008 and 2008/2009. Especially in 2008/2009, global cotton consumption dropped by 2.8 million tons due to the subprime mortgage crisis, and the inventory-to-consumption ratio increased even more. 4 percentage points to about 55%. Since the fundamentals of cotton have not changed much, the decline in cotton prices is mainly affected by the subprime mortgage crisis.
Domestically, China’s cotton production increased for the fourth consecutive year in 2007/2008, and demand continued to increase. The final inventory decreased by only 10,000 tons compared with the previous year. China’s cotton production decreased in 2008/2009�At the same time, consumption fell sharply simultaneously, with ending inventory increasing by 410,000 tons year-on-year, and the inventory-to-consumption ratio rebounding to around 50%. From a fundamental perspective, domestic cotton prices themselves do not have the conditions to rise, and are even under pressure, while the subprime mortgage crisis has deepened their decline. During the period from March to November 2008, the domestic Zheng cotton index fell by about 35%, and the US cotton index fell by about 58%.
After the outbreak, so far, ICE cotton futures have fallen by a maximum of 31%, and domestic Zheng cotton has also fallen by a maximum of about 31%.
In 2019/2020, the global cotton ending inventory consumption increased by about 4 percentage points month-on-month. However, due to the decline in consumption, the ending inventory increased significantly year-on-year. From this aspect, cotton supply and demand this year The difference is in 2007/2008. In 2020/2021, the cotton planting area in the three major countries of China, the United States and India is expected to decrease, resulting in a year-on-year decrease in global cotton production, while consumption may be similar to this year. Therefore, we expect that the fundamentals of global and Chinese cotton supply and demand in the next year will be better than this year and better than in 2008/2009. To sum up, compared with the 2008 U.S. stock market crash, the magnitude of the U.S. stock market crash this year is similar to that in 2008; the global cotton supply and demand in 2019/2020 is worse than that in 2007/2008, but the supply and demand in 2020/2021 is better than that in 2008. /2009. Therefore, from a comparison of the performance of US stocks and the supply and demand side of cotton, there are no obvious advantages or disadvantages in the overall situation between this year and 2008.
Comparatively speaking, the 30% decline is close to that in 2008; from the perspective of planting costs, cotton prices have fallen below the cost price. In terms of price alone, going long cotton has a large safety margin; however, the global epidemic has not yet reached an obvious turning point, and the price of Zheng cotton may fluctuate. </p
