Recently, the price of cotton has risen and fallen by a large margin, and the rhythm of switching between rise and fall is fast. Bullish and bearish prices may be “slapped” at any time. This is the author’s most profound feeling during the research in late February. The rise and fall of Zheng Mian is like a change in the weather, confusing the market and making it even more elusive for the author who is on the front line of research. The author believes that the factors affecting future cotton price trends are as follows:
When market expectations are basically consistent, the cotton market is more likely to change. At present, there are relatively few differences in judgment on the trend of Zheng cotton. The market generally predicts that the fluctuation range is 13,000-16,000 yuan/ton. Of course, there are also niche opinions that the prediction range is 12,000-15,000 yuan/ton or 14,000-17,000 yuan/ton. The above is Recently, the author learned about the real market views through in-depth front-line research. Of course, the reasons are not complicated. Domestic economic recovery, monetary easing and cotton cost support are all conducive to the upward movement of cotton prices. However, the foundation for domestic economic recovery is not solid. The Federal Reserve has not stopped raising interest rates. The specter of economic recession in the United States and Europe has always existed. The fundamentals of cotton supply and demand are not conducive to excessive increases in cotton prices. Therefore, market participants generally predict that cotton prices will fluctuate within a wide range.
Why do we say that if the expectations are consistent, the market is more likely to change? Now the market trend has shown that when the market expected the price to fall below the Wansi mark, Zheng Cotton’s adjustment in this wave was as low as 14,085 yuan/ton, and then began to rebound. Many expected to buy the bottom below 14,000 yuan/ton. The people miscalculated again. The market always moves towards the side with the least resistance and the weakest market voice.
The Fed’s interest rate hikes will still have an important impact on the market. Every interest rate meeting of the Federal Reserve will have an important impact on the global financial market, and it has been tried and true. This time, I went to the front line to investigate and found that cotton price fluctuations sometimes have little to do with fundamentals, and there is not much fundamental news. However, domestic and foreign cotton futures prices are changing all the time, sometimes drastically. Front-line cotton professionals believe that cotton price fluctuations are closely related to global monetary policy, and some economic data indicators will also have an impact, but they are most closely related to monetary easing and tightening. The person suggested that while paying attention to the fundamentals of cotton, we should also pay more attention to changes in the country’s monetary policy. Only in this way can we truly feel the disturbances in the cotton market. Now that the Federal Reserve has entered its second half of raising interest rates, market expectations for interest rate cuts have been repeatedly postponed because employment data remains strong and inflation is falling slower than expected. Expectations of an economic recession have once again emerged. Therefore, cotton price fluctuations will continue to be affected by interest rate hikes.
The rise and fall of cotton prices have a great impact on the prices of downstream products. This time we went deep into the front line and found that the changes in cotton prices have a huge impact on corporate purchases. The main reason is that companies are now conducting basis spread transactions on futures, resulting in daily basis spreads and prices changing with futures. A person in charge of a textile company said that cotton prices rose rapidly in the first week after the holiday, and cotton yarn prices also rose rapidly. In just one week, the spot price of cotton yarn has increased by 1,000 yuan/ton. However, this increase did not last. Subsequently, futures cotton and cotton yarn prices fell rapidly, and spot prices followed suit. The final sales price returned to the pre-holiday rising position. Such sharp rises and falls are very detrimental to the smooth operation of the industrial chain. This survey coincides with the decline in cotton prices. Enterprises are very cautious in purchasing raw materials, keeping inventories at a low level. They basically use whatever they want and arrange their procurement strategies according to orders. Of course, the drastic adjustment of cotton yarn is also true for cloth factories. If the price fluctuates significantly, the wait-and-see mood of enterprises will become strong, which will in turn affect the production and sales speed of the entire industry chain.
The operating rate of enterprises remains high and inventories have increased. At present, the market is most concerned about downstream consumption issues, which is also the focus of this survey. How about downstream consumption? Although the products produced by each company are inconsistent with the market they face, it can be felt that production remains normal, but profits have decreased with the decline in cotton yarn prices. The raw material inventory of enterprises also remains normal, maintaining about 20-30 days, and the inventory of large-scale enterprises is about 2 months. When cotton prices fall, they will purchase based on futures prices. Their expectations for the future market determine their enthusiasm for replenishing their stocks. During the author’s research, cotton prices fluctuated and fell. Companies were more worried about future cotton prices and basically bought as they picked. When the market is not particularly clear, companies are still arranging purchases based on production orders, and the possibility of blindly stocking raw materials at the current price is low.
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