“Today’s listed purchase price is 5.5 yuan/kg, which is 0.3 yuan/kg higher than the previous few days. The daily purchase volume has increased from about 300 tons to 1,700 tons.” On October 18, a cotton ginning factory in Tiemenguan City The person in charge, “Lao Henan”, said in a telephone interview with reporters that Xinjiang cotton farmers are currently actively selling seed cotton, and most ginneries have started production one after another. The market has shown a good development trend with gradually active purchases and sales.
According to the person in charge of some ginning mills in Shihezi City, as more and more ginning mills start production, although there is no obvious panic buying in the new season seed cotton market and the purchase price of seed cotton is rising slowly, the market is bullish. However, the sentiment is getting stronger day by day, and the purchase price of seed cotton in Xinjiang has been rising overall recently. The stimulus is that ginners want to harvest more seed cotton, so some ginners have begun to raise the purchase price every day. As a result, on the one hand, it increases cotton farmers’ price expectations, and on the other hand, it helps the purchase price of seed cotton to rise steadily.
However, judging from the trend of Zheng cotton futures prices in recent and far months, after experiencing a slight upward trend after the National Day holiday, the overall trend of futures prices has been weak recently. A cotton market person in Ningbo City believes that the epidemic situation in some areas of Xinjiang has improved, and the logistics link for new lint cotton to enter futures delivery warehouse receipts will be opened up. According to the current seed cotton purchase price, the selling of new lint cotton is still relatively low in the 2211 contract and so on. Cost-effective, it is estimated that this is the main reason why the purchase price of Xinjiang seed cotton continues to rise and the futures price of Zheng cotton goes down.
“Old Henan” told reporters that since the purchase of seed cotton started at the end of September, the gin factory he is responsible for has purchased nearly 10,000 tons of seed cotton. The initial purchase price was 5.2 yuan/kg. The purchase price of most of the seed cotton that has been stored in the warehouse is 5.3 yuan/kg. The processed lint has been transported to the futures delivery warehouse in time. The organization that purchased lint said it has carried out hedging operations on the futures market. It is expected that a considerable number of ginners will hold this business idea.
Mr. Shang, a senior cotton market analyst from Wuhan City, Hubei Province, analyzed the future price development trend from another perspective. He said that since May this year to the present, the futures price of Zheng Cotton’s main 2301 contract has dropped from 21,300 yuan/ton to about 13,500 yuan/ton. In just a few months, the gains accumulated in the bull market in the past two years have been wiped out, causing Cotton futures spot prices have returned to relatively low levels in history. Therefore, when the current cotton market is facing many contradictions between bad and good, trading opportunities should be examined and considered from the perspective of cotton’s own value.
First, global and domestic cotton prices have declined.
Teacher Shang said that the decline in domestic cotton prices began in early May this year and hit the lowest price at the end of September. The cumulative decline in mainstream prices in the market was about 40%, which was the largest decline among all commodities during the same period. At the same time, U.S. cotton also experienced a sharp decline, and the mainstream price in the market also fell by about 40%. However, because the early increase of U.S. cotton was significantly higher than that of Zheng cotton, although the two fell simultaneously, the domestic and foreign cotton market prices were still significantly upside down.
“Reviewing the reasons for the decline in global cotton prices, we can find that they are mainly concentrated in two aspects. First, the global economic growth is expected to be poor, and demand is obviously declining. Due to the Federal Reserve’s sharp interest rate hikes, etc., the global economic downward trend is obvious, suppressing cotton demand. The second is Last year, the replenishment of textile stocks in Europe and the United States exceeded expectations, leading to forward demand, and the current market is under great pressure to destock,” said Teacher Shang.
Second, there may still be room for downward adjustments in demand.
Teacher Shang said that the latest monthly supply and demand report of agricultural products released by the United States Department of Agriculture shows that global cotton consumption has been significantly reduced. Global consumption in 2022/2023 has been reduced to 25.13 million tons, down 1.66 million tons from the previous year’s high, and lower than the previous year by the United States Department of Agriculture. The consumption peak given was 27.13 million tons, which fell by 2 million tons. Although the USDA has made a strong reduction in consumption, he believes that there is still some room for downward adjustments in the future.
“Judging from historical data since 2000, global consumption has experienced three significant declines. The largest decline was the rapid decline caused by the epidemic in 2020, which was reduced by 3.64 million tons. The other two significant declines came from 2008 and 2020. In 2012, they were reduced by 2.8 million tons and 2.43 million tons respectively. If the high and low points are calculated, during the financial crisis period from 2006 to 2009, consumption was reduced from 26.87 million tons to 23.96 million tons, a decrease of 2.91 million tons, a range of 10.8%; From 2010 to 2012, consumption was lowered from 25.9 million tons to 22.39 million tons, a decrease of 3.51 million tons, a decrease of 13.5%; during the epidemic period, consumption was lowered from 26.72 million tons to 22.58 million tons, a decrease of 4.14 million tons, a decrease of 15.5%. “Teacher Shang said.
Considering that the recovery in 2009 and 2010 was a stimulus rebound after the return of consumption, if we look at 2006-2012 as a contraction cycle, the consumption peak fell by 4.48 million tons, a range of 16.7%. According to linear deduction, the current global political economy is facing severe challenges, and the decline in global consumption may not be more than this, and there is still some room for downward adjustment.
Third, analysis of triggering factors for a new round of cotton bull market.
Teacher Shang believes that from the perspective of the supply and demand pattern of the cotton market, if the market wants to see a healthy upward trend, the following core issues must actually be solved: phased surplus of Xinjiang cotton, accelerated recovery of domestic demand, and recovery of European and American demand.
It is easiest to solve the current cotton surplus in Xinjiang. All we need to do is increase reserves.Can. Judging from the current amount of cotton reserves in our country, it is reasonable to increase the reserves. Moreover, the current cotton price is low and the reserve cost is not high. In the short term, the current Xinjiang cotton surplus problem can be alleviated by increasing reserves. However, due to the obvious surplus, the amount that needs to be transferred is relatively large. At present, Xinjiang new cotton is gradually entering the market, and both supply and demand are waiting and watching. If more than 1 million tons of Xinjiang cotton can be imported in the new year, it will play a better role in solving the problem of Xinjiang cotton surplus. The improvement of domestic demand, on the one hand, is income, and on the other hand, confidence. Investors need to continue to pay attention to macroeconomic data such as retail sales of consumer goods. Considering the current deterioration of the economic situation in Europe and the United States, it is estimated that its recovery will be more difficult than that in China.
“If the above problems can be solved, domestic cotton may stabilize and rebound.” Teacher Shang said.
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