On July 2, China Cotton Reserve Management Co., Ltd. and the National Cotton Trading Market jointly issued the “Announcement on the Rotation of Central Reserve Cotton in 2021”. From July 5 to September 30, 600,000 tons of central cotton reserves will be rotated out. Reserve cotton, the “boot” of national cotton regulation has finally been implemented. Some cotton-related companies and speculators believe that the domestic cotton futures market is about to run out of negative news, and signs of intermittent rebound are emerging.
The only difference from the cotton reserve rotation in the previous two years is that the fuse machine will be adjusted from a fixed price to a dynamic price in 2021. The announcement stipulates that when the domestic market cotton spot price index continues to When the cumulative decline in three working days exceeds 500 yuan/ton, trading will be suspended from the next working day; when the domestic market cotton spot price index stops falling cumulatively for three consecutive working days, trading will be restarted on the next working day. It is obvious that this year’s circuit breaker mechanism has a significant inhibitory effect on the unilateral sharp decline in cotton prices. It is more flexible, more efficient and more targeted than in previous years, and its intention to support the bottom is more obvious.
So what impact will the rotation of cotton reserves in 2021 have on the direction of ICE and external markets? The author’s view is that it is still difficult to escape the consolidation range of 85-90 cents/pound in the short term.
First, in terms of quantity, the rotation of 600,000 tons of central reserve cotton may further reduce China and the world’s 2021/22 ending stocks, which will help ICE support the US$85 Points/pound rebounded; secondly, cotton resources purchased and stored in 2011-2013 were mainly rotated out, and indicators such as grade, quality, and spinnability had a weak impact on the import of medium and high-quality foreign cotton in 2020/21 and 2021/22; thirdly, The news of the 2021 reserve cotton rotation has been in the dust since May. The bad news has been gradually diluted and digested. Bulls and funds are not confident enough to make a sharp increase or even short squeeze. The main contract of ICE cotton futures does not have the ability to quickly stand above 90 cents/ pounds, with the momentum to hit a new high; fourth, the rollout of a total of 600,000 tons of reserves is likely to mean that the issuance of 700,000 tons of sliding-duty cotton import quotas will be delayed, and the expectation of issuance in advance to July may be disappointed. For ICE, The rebound in foreign cotton spot is negative. </p
