Affected by factors such as the conflict between Russia and Ukraine, the return of drought in South America, and the surge in international crude oil prices, the external agricultural products trended rapidly during the Spring Festival. Domestic commodities also rose on the first trading day after the Spring Festival holiday, and Zheng cotton futures prices also ushered in a sharp rebound. The year had a good start and returned strongly, breaking through 22,000 and reaching the highest point in recent April. Although it subsequently fell back, it is still at a high level. So what are the current fundamentals of cotton? Will the Year of the Tiger continue to be powerful and hit new highs?
Spot status 96
The current spot price of cotton in Xinjiang is at a relatively high level over the same period in five years. As of February 8, 2022, the spot price of cotton in Xinjiang was 22,920 yuan/ton, an increase of 30 yuan/ton from the previous trading day. The main futures price was 21,795 yuan/ton, down 210 yuan/ton from the previous month.
Global cotton supply and demand
According to the latest global cotton supply and demand forecast released by the United States Department of Agriculture (USDA) in January, global cotton production and ending stocks will decrease month-on-month in 2021/22, consumption will mainly remain stable, and the global cotton inventory-to-sales ratio will continue to decline.
Yield
Due to the reduction in cotton planting area across the country in 2021, coupled with the prolonged low temperature in Xinjiang last spring and drought in some areas in summer, cotton growth has been adversely affected, resulting in a decline in cotton production. According to national cotton production data released by the National Bureau of Statistics, the national cotton production in 2021 will be 5.731 million tons, which is 180,000 tons lower than the production in 2020 and a year-on-year decrease of 3%. Among them, Xinjiang’s cotton output was 5.129 million tons, a year-on-year decrease of 32,000 tons. Although domestic cotton production has decreased, the reduction is not significant. Coupled with weak downstream consumption, domestic cotton is still in a situation of oversupply.
in stock
As cotton planting costs rise, cotton prices also remain high. The downstream cotton spinning industry is not willing to purchase goods, and cotton commercial inventories are accumulating. According to survey data from China Cotton Information Network on 154 cotton delivery and supervision warehouses, social warehouses, bonded area inventories and processing enterprise inventories in 18 provinces and cities in the national cotton trading market, the total national cotton commercial inventory at the end of December was approximately 5.5598 million tons, which was 5.5598 million tons. Last month, there was an increase of 1.0077 million tons, an increase of 22.14%, which was higher than the 267,100 tons in the same period last year. Looking ahead, cotton supply pressure may be on the high side.
need
Since August last year, consumption in the downstream cotton spinning market has weakened, cotton yarn market transactions have declined, and orders from textile mills have decreased. Although consumption has rebounded before the holidays, it is still less than expected, resulting in textile mills’ finished product inventories at high levels. Textile companies are not in a high mood to restock. In addition, during the Spring Festival holiday, raw material purchases have dropped to a low point, resulting in low raw material inventories. The cotton spinning industry is about to enter the peak season. Low raw material inventories may create a rigid demand for cotton replenishment.
On the other hand, from the perspective of consumption and profits of cotton spinning companies, cotton prices remain high and downstream acceptance is not high. The profits of cotton spinning companies have also decreased, and the growth rate of sales data of cotton spinning companies has slowed down. Overall, downstream demand is weak, which provides weak support for cotton prices.
Summarize
Generally speaking, due to the increase in land rent, chemical fertilizers, labor and other planting costs, higher planting costs have provided strong support to cotton prices. The textile industry is about to enter the seasonal peak season, and the low raw material inventory before the year has rigidly supplemented cotton. library requirements. However, in the context of loose supply, cotton’s upward momentum is limited. In the short term, cotton may continue to maintain a volatile and strong pattern.
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