Since April, ICE cotton futures have started to fall back in shock. Currently, bulls and bears are competing at the 80 cents/pound mark. In addition, the U.S. Federal Reserve announced on May 3 that it would raise the target range of the federal funds rate by 25 basis points to 5%-5.25. % level, triggering the decline of most foreign commodity futures. However, since the end of March, Zheng Cotton has started a strong rebound rhythm. The main September contract has broken through key points in succession, and the Wanliu mark is close at hand.
Why was Zheng Mian able to stage an independent and substantial counterattack against the backdrop of external markets, negative news, and weak and volatile ICE futures? The author summarizes the following points:
The first is to hype the weather in Xinjiang’s cotton areas. Although spring sowing has begun in most cotton areas in southern Xinjiang since late March 2023 (it gradually started in northern Xinjiang in mid-April), low temperatures, precipitation, sand dust, hail, and frost have taken turns, causing cotton seeds to germinate and emerge. , growth has encountered difficulties, and large-scale replanting and reseeding have become the norm. The industry’s concerns about Xinjiang’s cotton output in 2023/24 have increased significantly.
Second, the cotton sown area in northern Xinjiang may decrease significantly, and southern Xinjiang is not optimistic either. In addition to the low price ratio of grain and cotton in 2022, farmers will earn high profits from peppers, tomatoes and other crops, which will speed up farmers’ adjustment of their planting structure.
Third, although most cotton textile companies place orders until mid-to-late May, the current operating rate of the midstream and downstream remains at a high level. Judging from the survey, as of the end of April, in addition to the low level of yarn inventory in cotton spinning mills, cotton yarn traders and intermediate links are still very willing to sell. In addition, strong expectations for further improvement in the cotton textile and apparel industry in the second half of 2023 have continued to restore confidence in consumer terminals.
Fourth, China’s economy is accelerating its recovery, and cotton consumption will show a pattern of “not slow in off-season”. The latest data shows that China’s manufacturing purchasing managers index (PMI) in March was in the expansion range for the third consecutive month; the non-manufacturing business activity index in March was 58.2%, an increase of 1.9 percentage points from the previous month, which was significantly higher than the critical point, while China The consumption boom of the “most prosperous May Day” also dispelled worries.
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