The new cotton season in the northern hemisphere is about to hit the market. The August USDA report shows that the U.S. cotton production in 2022/23 is estimated to be 638,000 tons lower than in July. my country’s cotton growth situation is relatively good, the planting area has increased, and the harvest is expected to be strong. In 2022/23, the my country’s total output is expected to exceed 6 million tons, and the expected output directions are quite different.
Figure 1 Closing price trend chart of Zheng cotton and US cotton futures in 2022
“At this rate of decline, it is estimated that when the new season cotton comes on the market, the opening price of spot seed cotton in the main producing areas will be around 5.5 yuan/kg, and the mainstream price in the market is more likely to be around 5 yuan/kg.” said a family in southern Xinjiang. The person in charge of the ginner told reporters that at present, the factors affecting the market price of domestic old cotton and new cotton are complicated. Although the US Department of Agriculture recently announced production reduction data that was very unexpected to the market, its effect on domestic cotton prices is limited, and After the speculation on the US cotton production reduction and its return to the downward channel, domestic cotton prices began to fall sharply again in the night trading on August 17. It is expected that before and after the launch of domestic new cotton, the mainstream market price of domestic new lint cotton will fall back to 2019 The possibility of price range in 2020 and 2020 is higher.
Future fluctuations in domestic cotton prices will be mainly affected by the following factors:
First, the current domestic cotton market and the US cotton market are differentiated. Affected by multiple factors, the downstream demand for my country’s cotton is relatively weak, and the export channels to Europe and the United States are not smooth. If energy problems in Europe trigger macro problems such as the European debt crisis this winter, , then various market entities in the domestic cotton industry chain will be impacted again.
Second, there is a lack of purchasers in the domestic cotton market in the new season, and the rush-buying phenomenon that has occurred in past years may not reappear this year. After the baptism of the market in 2021, the production and operation of some ginning plants are in trouble. As of now, there are still many gins that have not been contracted by third parties, and many gins that plan to purchase newly produced seed cotton have stated that they will do so rationally.
Third, new cotton is growing very well, and expectations for increases in unit yield and total output are optimistic. It is estimated that the increase in output will, to a certain extent, make up for the loss of cotton farmers’ income from lower prices. However, for cotton farmers, since the minimum target price of cotton is still implemented in Xinjiang this year, the probability of damage to cotton planting income is not high.
The fourth is how to deal with the large carry-over old cotton inventory. Recently, although the State Reserve has carried out some purchases and storage of cotton, the quantity is small and cannot effectively solve the problem of old cotton inventory. Data released by relevant agencies show that the current social inventory of Chen cotton is about 3 million tons.
Fifth, the inventory of finished products in the downstream cotton industry is large and orders are “light”.
To sum up, from the perspective of supply, the price difference between domestic and foreign cotton will still maintain an inverted trend for a long time, and cotton prices will basically return to demand. Pay attention to the performance of autumn and winter orders.