At present, the domestic cotton market is experiencing a difficult survival situation that has been rare for many years. First, ginners and others own a large amount of high-cost old cotton, which is difficult to sell at a reasonable price, and they also face pressures such as loan repayments. Second, due to various factors, cotton downstream products such as textile mills and clothing companies have a difficult outlet, capital withdrawals are restricted, and business goals are difficult to achieve. However, after entering May, corporate orders have begun to increase. Third, after the new season cotton is planted, the weather conditions in the main producing areas are better, which has laid a good foundation for a bumper cotton harvest. However, there is a high probability that the expected purchase price of seed cotton will not reach the psychological price of cotton farmers. With large production inputs, cotton farmers will Earnings may not be as good as 2021. Fourth, the market still needs good news to stimulate, such as the epidemic being effectively controlled and the Chinese and global economies fully recovering. However, this process may have twists and turns.
Some cotton ginning factories want to “lie down”
Li Zhenhua, director of the research and trading department of Zhongheng Supply Chain Co., Ltd., told a reporter from Futures Daily that when new cotton comes on the market in 2021, although ginners understand the principle of “rushing to harvest at high prices and seeking death”, they have no choice but to have limited market resources. Under the “dead” living environment, most ginners have joined the army of raising prices to harvest seed cotton, so that the purchase price of seed cotton in 2021 once reached more than 11 yuan/kg. However, since the end of the seed cotton acquisition, neither the spot market nor the futures market has given a good opportunity to sell lint cotton, resulting in a large amount of lint cotton resources remaining in the hands of ginners. As time goes by, the accumulated capital interest, storage fees, labor costs, etc. continue to push up the expected sales price of lint in stock. At this time, the spot price of domestic lint futures has not performed well. Even if cotton prices in the international market continue to rise, domestic cotton prices have not kept pace. Considering the impact of epidemic prevention and control and other factors, it is even more difficult for ginners to achieve the same price. Sales Plan.
“The production capacity of the cotton gin factory is seriously greater than the output, which is the main reason for its deep predicament.” Li Zhenhua said that the overall thinking of the cotton gin factory still remains at a very linear level of “low prices have little risk, and high prices have increased risks.” , coupled with the rush to harvest that has been occurring in the past few years, has led to great decision-making inertia. In particular, the ginning mill believes that the market will always give an opportunity to “unwind” after rushing to harvest at a high price, but now there is no open price sales window in the market. Under such circumstances, most ginneries can only “lay flat”.
It is understood that from the perspective of the market pricing mechanism, as long as the overall market purchase and sales logic remains unchanged, the market in the middle and early stages of each cotton year will indeed provide opportunities for price sales. However, the market in 2021 is somewhat special, mainly due to various factors. As a result, after the seed cotton acquisition was completed, the market did not give a good opportunity, and then the cotton price continued to decline. For the cotton futures market, the function of the futures market is to discover prices and diversify risks. The fundamental reason for diversifying risks is the participation of speculators. However, the participation of speculators in the cotton futures market in 2021 is insufficient and cannot provide enough for ginners. The opportunity to diversify risks that can achieve the expected sales at the same price eventually leads to various “weird phenomena” in the current market, including the “post-price pricing” behavior of ginning mills, and also lays the foundation for the “basis involution” of spot traders. Foreshadowing.
Li Zhenhua said that at present, the entire ginning mill group holds a large number of “positions” in the futures and spot market, and everyone wants to cash in as soon as possible, but the current market conditions are obviously unable to provide such a large amount of liquidity. Coupled with the epidemic spreading in Shanghai and other places, the expected stability of market demand is full of variables, and non-necessities such as clothing have been greatly affected. Therefore, under the current situation of poor market liquidity, some cotton market entities have begun to place their hopes on the state reserve cotton purchase, but this can only be wishful thinking. On the one hand, with such high prices, will the relevant agencies start purchasing and stockpiling to protect the ginning mills? On the other hand, with the current severe epidemic prevention and control situation and lack of economic growth momentum, the relevant agencies may not be too cautious. Use more funds to purchase and store cotton.
Yan Kui, a cotton trader in Aksu City, told reporters that some ginners have recently gathered frequently to discuss how to achieve smooth sales. However, because the average purchase price of seed cotton in 2021 is too high, the current lint production cost is much higher than the mainstream transaction price in the market. Some ginners have already incurred book losses of 3,000-4,000 yuan per ton of lint cotton, putting the companies under great pressure.
According to the reporter’s understanding, based on the mainstream purchase price of seed cotton in most ginners in 2021, the production cost of lint cotton is 23,000-24,000 yuan/ton, and that of individual ginners is around 25,000 yuan/ton. Since many ginners have used bank loans or other third-party funds, and some ginners have state-owned assets, it is not easy to deal with the old cotton inventory. The key is who will bear the actual losses if they occur. For example, a ginnery with a state-owned background produced 12,000 tons of lint cotton in 2021, but has sold only 3,000 tons so far. Industry professionals told reporters that losses in cotton gins are a common phenomenon. Compared with cotton gins with state-owned assets, the living environment of private cotton gins is worse. Under normal circumstances, a private cotton ginning factory often has 5-6 shareholders, and the deposit paid by a shareholder ranges from millions to tens of millions of yuan. As cotton prices continue to fall, the margins of these shareholders have basically been lost.There are only 2. The main reason is that high temperatures and good weather have made cotton grow well, and cotton yields per unit area are expected to be higher than in previous years.
Information from the meteorological department shows that in the early stages of cotton growth this year, there are fewer extreme weather conditions such as hail and frost that often occur in many places in Xinjiang in previous years. Except for local hail passing through, the temperature and precipitation conditions throughout the spring are very favorable for cotton. grow. In the past May, the temperature across Xinjiang was abnormally high, ranking first for the same period in history, and the precipitation was close to normal. According to statistics, the average temperature in Xinjiang in May was 20.5°C, 2.9°C higher than normal and 1.6°C higher than last year; the average precipitation in Xinjiang was 20.6 mm, close to normal, 30% higher than in 2021; it is expected that from June to August, The average temperature in Xinjiang and other places is 1-2°C higher, and the number of days with the daily maximum temperature ≥35°C is more than the same period of the year, which means that there is the possibility of sustained high temperatures in the later period, which is more beneficial to the growth and development of cotton.
The reporter also learned from market participants that cotton farmers’ production costs this year are relatively high due to the increase in land parcels, agricultural supplies, labor and other expenses, but it is expected that the increase in output will reduce unit production costs. Market participants also believe that the purchase price of new seed cotton this year is expected to be relatively low, and there is a high probability that it will not meet the expected psychological price of cotton farmers.
Clothing exports rise steadily
Statistics from the General Administration of Customs and other agencies show that with the effective prevention and control of epidemics in various parts of the country, especially in the main textile and clothing producing areas, and with the help of local policies to stabilize foreign trade, textile and clothing companies have actively resumed work and production, ultimately stimulating the growth of my country’s Textile and apparel exports experienced rapid recovery growth.
According to statistics, from January to May this year, the country’s textile and clothing exports totaled US$125.07 billion, a year-on-year increase of 11.2% (a year-on-year increase of 9.1% in RMB). Among them, textile exports were US$62.85 billion, a year-on-year increase of 12.1% (a year-on-year increase of 10% in RMB); clothing exports were US$62.22 billion, a year-on-year increase of 10.2% (a year-on-year increase of 8.1% in RMB). Thanks to the implementation of a package of policies to stabilize the economy and foreign trade issued by relevant agencies since the end of April, as well as the improvement of the domestic epidemic situation, the national logistics transportation and supply chain have been well repaired, and my country’s textile and apparel exports performed better than expected in May. In May, the country’s textile and apparel exports were US$29.23 billion, a year-on-year increase of 20.4% (a year-on-year increase of 18.6% in RMB) and a month-on-month increase of 23.9%; in May, the country’s goods exports increased by 16.9% year-on-year, and the growth rate of clothing exceeded the national average level of goods exports. 8 percentage points.
Some textile companies reported that the current domestic epidemic situation is basically stable, and relevant agencies have introduced a series of policies to stabilize foreign trade. Some orders that were previously lost are now coming back one after another. The return of orders also benefits from the strong competitive advantages of domestic product quality and price in the international market. In addition, the fall in domestic lint prices is more conducive to improving the competitiveness of textile companies. Cotton demand is expected to slowly rebound. Taking into account factors such as price reductions and promotions by ginners and cotton merchants, the domestic cotton market will become more active in the future. Overall, the dilemma in the cotton market will be effectively resolved.
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