In the early days, cotton prices rose sharply, and the market cheered. Now, cotton prices have fallen sharply, and companies have begun to suffer the pain of a correction. Just like the tide, there is always an ebb and flow, and it will not always rise or fall forever. How cotton prices will operate in the future is of great concern to the market. Whether companies will usher in a brighter moment or continue to be in trouble.
The author believes that the current fundamentals of the cotton market are indeed not ideal. There are few downstream orders, low profits, and large inventories. Under the pressure of these three mountains, it is very difficult for cotton prices to take off. In previous years, December was also the traditional off-season for the cotton spinning industry, and production and sales were in a downward trend, but this year the situation is weaker.
According to the company’s feedback, the current international and domestic order situation is not ideal, and domestic orders are relatively worse. The company basically receives new orders in about half a month, and the inventory of finished products has increased. Raw materials are purchased as needed, and they dare not accumulate large quantities of cotton. After all, cotton The price has been in a weak position and the risk of downside is still high. Since low-count yarns mainly use reserve cotton as raw materials, profits are relatively guaranteed, but purchasing new cotton yarn at current market prices is basically no profit.
There are currently many factors affecting cotton prices. The author believes that the focus is still on consumption. Only when there is a substantial change in consumption can cotton prices have a moment to rise. Otherwise, they will continue to be weak. There is no doubt that the current market conditions are putting great pressure on cotton companies. The price difference between futures and current prices is too large, and companies are unable to hedge normally and face huge risks of decline. Second, high spot prices face great sales resistance.
Xinjiang cotton insiders said that ginning companies now have sufficient funds. They are transporting cotton and moving it to warehouses in the mainland while maintaining firmness. They hope that cotton prices will perform well in the coming year. It is critical for cotton prices to move before May next year. If cotton prices continue to run weakly, it will be difficult for the entire year to improve. Because in the new year, driven by the high returns from cotton planting, cotton farmers will inevitably expand and switch to cotton planting to increase supply and further suppress cotton prices. The world is also facing this situation. Among bulk agricultural products, cotton performs better than soybeans, corn, sugar and other crops.
In the short term, cotton prices are weak and fluctuating, and there is a risk of continued decline; in the medium and long term, it depends on the degree of consumption recovery and whether the relationship between China and the world’s major economies such as the United States can improve in the future. Therefore, we cannot prematurely conclude that cotton prices have begun to go “bearish”, nor can we imagine reaching new highs. “Black swans” and “gray rhinos” exist together. We must remain cautious when rising and not be overly pessimistic when falling. Can last a long time.
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