Recently, cotton prices are expected to reach a long-term top. The reason is that on the one hand, the US Department of Agriculture’s February supply and demand report lowered US cotton exports, and the export data is relatively weak; on the other hand, global cotton planting intentions in the new year have increased significantly, increasing On the macro front, the US dollar has strengthened due to the increased expectations of interest rate hikes and the impact of the situation in Russia and Ukraine. But the strong reality is still there, which will limit the space below cotton prices in the short term. In addition, from the international market, high cotton prices in India and strong crude oil prices have also brought certain support to domestic cotton.
Indian cotton supply is temporarily tight
Cotton prices in India will rise strongly in 2021/2022. As of the week of February 19, India’s 2021/2022 cotton weekly market volume was 130,000 tons, a decrease of 36,000 tons from the previous week, an increase of 50,000 tons from the same period last year, and a decrease of 40,000 tons from the average of the past three years; India The cumulative volume of cotton on the market in 2021/2022 is 3.59 million tons, a cumulative decrease of 110,000 tons compared with the average of the past three years. The periodic tight supply has stimulated cotton prices, and the domestic cotton price in India has risen to over 130 cents/pound.
Khmer prices have brought certain negative effects. In the case of soaring spot prices, since the MSP is obviously low, the CCI acquisition volume is zero, and there is a lack of bargaining chips for regulation. High cotton prices have made Indian exports uncompetitive, and domestic yarn mills have been unable to bear the high cotton prices, forcing them to increase imports of cotton. This has brought significant support to U.S. cotton and Brazilian cotton. Although the growth rate of US cotton is not as high as that of India, the strong cotton price in India has limited the downward space of US cotton. This supporting factor cannot be broken until the negative feedback of Indian consumption to domestic cotton prices.
Dollar strength may be hindered
In terms of international market macro, market expectations for the Federal Reserve to raise interest rates have increased, with expectations for eight interest rate hikes rising. Overall, the market has relatively fully digested the interest rate hike, and there is a possibility that interest rate hike expectations will cool down in the later period, which will hinder the strength of the US dollar. Moreover, judging from the performance of past interest rate hikes, cotton prices have risen in all four rounds of interest rate hikes since 1994, with the increase ranging from 3% to 8%. In addition, crude oil prices have fluctuated significantly under the influence of the short-term situation between Russia and Ukraine, but the overall upward trend has not been destroyed. Based on fundamental support, it is still expected to maintain an upward trend in the later period, which will also bring certain support to cotton prices.
In the domestic market, although demand is indeed facing weak conditions, policy support, short-term basis and rigid demand purchasing power may limit the decline of cotton prices.
Textile enterprise inventories are at low levels
Although textile companies have made some purchases before the Spring Festival, the overall raw material inventory level remains low. High cotton prices have made textile companies basically purchase and use as they go. In February, the cotton inventory of textile companies dropped to less than 30 days, which was at the lowest level in the past five years. Textile companies have urgent procurement needs, which provides certain support for the raw material end.
At present, the sales progress of Xinjiang cotton in 2021/2022 is obviously slow, cotton companies are under great pressure, and subsequent policy support is more likely to be provided. The cotton inventory in the reserve has dropped to an extremely low level, and the demand for replenishment exists objectively. The arrival of Xinjiang cotton that the market has been looking forward to cannot be said to be impossible.
On the whole, although the global market has a bearish impact on the expected increase in supply in the new year, under the support of high cotton prices in India and the strong oil prices caused by the macro situation, the downside space for short-term international cotton prices is relatively limited. In the domestic market, due to the reluctance of ginners to sell, the spot price of cotton is strong, and the high basis supports the price of Zheng cotton. Cotton inventories of textile companies are at a five-year low, and rigid demand also provides certain buying support. Therefore, while signs of longer-term weakness are beginning to appear, the probability of short-term cotton prices turning into a wide range of oscillations is greater.
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