Entering this week, the purchase price of seed cotton in Xinjiang and the Mainland has been rising. The purchase price of machine-picked cotton in Xinjiang has reached a high of 6.5 yuan/kg, which is significantly higher than the lowest price of 5.1 yuan/kg at the end of September. The equivalent lint production cost has dropped from the lowest to 11,500 yuan/ton. The price rose to 14,000 yuan/ton, which has exceeded the expectations of some industry players. At this stage, Zheng cotton futures fluctuated and fell. The main CF2301 contract in the night trading on October 19 once fell to around 13,300 yuan/ton. It is a rare phenomenon that the price of seed cotton deviates from the trend of Zheng cotton futures. At present, the cost of high-priced new cotton has exceeded the selling hedging level. How will the market outlook perform?
Here, we need to understand the fundamental reason why the current price of seed cotton and the trend of Zheng cotton deviate from each other, which lies in the different market logics they interpret. The rise in seed cotton prices is due to the high planting costs of cotton farmers, who are reluctant to sell and push up prices. On the other hand, some ginning companies have high-priced hedging and seed cotton hedging, and are able to take over high-priced seed cotton due to their unique strategic advantages.
In addition, during the gap between the epidemic in Xinjiang, seizing the opportunity when the new season lint cotton has not yet been launched, and giving priority to the production of new cotton to achieve fast import and export are the reasons why companies in the current market dare to raise prices to purchase seed cotton. The logic of the Zheng cotton market lies in the future evolution of lint supply and demand. It is reported that after the National Day, the operating rate of textile enterprises in Shandong, Henan and other places has declined, and the number of orders has also been significantly reduced. This signal is obviously unfavorable during the peak season. Combined with the impact of the continuous decline in the external market, it is natural for Zheng Cotton to fall.
How long the divergence between the two will continue in the market outlook depends on the progress of new cotton processing. If Xinjiang cotton procurement, processing, and shipments can improve by the end of November, it will be meaningless for ginning companies to raise prices to promote harvests, and seed cotton prices will most likely fall back. Or, the price of seed cotton continues to rise, and the profits from high-level hedging space continue to be squeezed out, reaching a certain balance, and the price of seed cotton falls back. By then, the differentiation between the two will continue to narrow. If Xinjiang still maintains the status quo at the end of the month, this separation may continue.
Summarizing the situation and paying attention to the main driving factors that affect each will be more conducive to finding the emergence of market turning points in dynamic changes. At the same time, it is also the key for companies entering the market to avoid risks and prepare for rainy days.
</p
