“During the night trading time on August 30, US cotton experienced a large decline. According to normal market trading logic, Zheng cotton would more or less follow the downward trend during the daytime trading on August 31, but the fact is the opposite. Not only did Zheng cotton not go down that day, but it also oscillated up a lot.” Xu Tonghai, a cotton trader in Shandong Province, told the Futures Daily reporter that due to the large differences in market fundamentals, coupled with the main factors that currently dominate the price rise and fall in domestic and foreign cotton markets, All are relatively special, making the future development trend of the cotton market at home and abroad increasingly difficult to grasp.
According to the reporter’s understanding, domestic new cotton will be launched around September 15th. Currently, sporadic hand-picked cotton cotton is being traded in southern Xinjiang. Market entities are more concerned about the new cotton’s price, output, quality, etc., but the market transaction logic focuses on Still concentrated on the huge price difference between domestic and foreign cotton markets. In the international market, the focus of traders and industry entities is still the damage caused by weather in the main producing areas. The market is hyping up the drought in the producing areas. It is estimated that it will take a period of digestion before the switch from supply to consumption begins. end.
The price difference is astonishing! Forming a long trading logic in the domestic cotton market
In the previous period, the major cotton-producing countries in the international market – the United States, India, etc. – all experienced bad weather. The market expected that cotton production in various countries would decline to varying degrees. The US Department of Agriculture’s monthly supply and demand report of agricultural products in August specifically targeted US cotton. The output gave market bulls a big surprise and a big gift, and guided US cotton prices to continue to rise. At the same time, the market’s expectation that the Fed’s interest rate hikes would weaken also helped increase international cotton prices, and commodity inflation expectations also rebounded.
Looking back at the domestic cotton market, due to weak downstream demand, excessive inventory of old cotton, coupled with the impact of the “Xinjiang-related Act” becoming more and more deeply embedded in the industry, and the time for new cotton to be launched is approaching, although the spot price of cotton futures has reached 1,500-2,000 yuan/ tons of increase, but compared with the increase of US cotton, this range is still relatively small.
Since then, there has been a large price difference in the domestic and foreign cotton markets. If calculated based on the duty-paid cost of imported cotton at the port, the price difference of cotton with the same quality is about 6,000 yuan/ton. Under the astonishing price difference, faced with an opportunity that may be able to obtain huge profits, the domestic and foreign markets quickly formed the logic of long Zheng cotton and short US cotton.
Mr. Niu, a senior cotton researcher from Zhejiang, told reporters that the current import prices of cotton and corn are seriously inverted. If we take into account the depreciation of the RMB and the still strong performance of international cotton prices, although many professionals are relatively bearish on domestic cotton. price, but still cannot prevent it from rising with US cotton. At the same time, based on the conclusions drawn by some industry figures at a cotton industry conference held in Shanghai recently, the market is relatively pessimistic. The main focus is that new cotton will create greater pressure after it is launched, and everyone is generally bearish on cotton prices. However, Teacher Niu does not recommend short selling. He believes that if it really falls, it will be a buying point. The main basis is that the time point and factors faced by the cotton market this year are quite different from last year. In addition, Mr. Niu also believes that the differences in the market ultimately come down to the US cotton market. Due to the serious inversion of imports, everyone expects that US cotton consumption data will continue to decline, which will cause US cotton to continue to fall in the later period. The market’s reaction to this in the short term It will be less obvious.
“There are indeed many investment institutions in Jiangsu and Zhejiang, especially agricultural product futures investors with large funds, who are long in the Zheng cotton market. Their main trading logic is that the price difference between domestic and foreign cotton markets is huge.” The person in charge of a futures investment institution in Shanghai told Reporter, the huge price difference covers up the practical problem of huge differences in the fundamentals of the two markets at the same time, and makes everyone ignore the actual situation that the two markets are currently completely “separated”. At the same time, due to the current serious losses of Chen cotton stocks, and they cannot “clearly” announce it to the public now, some industrial enterprises and investors who own Chen cotton resources are still taking chances. On the one hand, they hope that the purchase and storage policy can Changes have been made to allow relevant institutions to “protect farmers and workers” and “protect businesses.” On the other hand, we hope that market demand will improve. In addition, we also expect that the purchase price of new cotton will be as high as last year, and we will still “grab the harvest” as the production capacity of ginners is still higher than the domestic cotton production pattern. And what will the reality be?
Who will take over the “fragmented” market?
“Currently, the U.S. cotton market has begun to ‘remove the ladder’, and the market’s speculation on dry weather is coming to an end. When the U.S. Department of Agriculture continues to revise its production and consumption in the later period, long domestic cotton prices will eventually lose the main basis. . Of course, there is nothing wrong with carrying out internal profit margining operations when the price difference between internal and external markets is huge, but you will encounter a ‘dead knot’ in the end of the transaction.” said the business person in charge of a company integrating cotton planting, processing and trading in Zhengzhou City, Henan Province , if this market pattern exists for a long time, then domestic cotton will eventually need to find a new way out. Currently, there are millions of tons of old cotton that no one has taken over, so will ginners take the initiative to “snap up” new cotton after it comes on the market? Without understanding the market development trend, the logic of “internal and external price differences” in market transactions is still feasible, but when the market becomes clear, the final taker will definitely have to bear greater risks. In addition�Some investors believe that in theory, Southeast Asian countries and other countries can import Chinese cotton and cotton yarn, and export domestic cotton and cotton yarn. The final result is that the outlet problem of my country’s cotton will be solved, but it is estimated that this will not happen in the short term or even within a few years. It cannot be “unblocked”.
The person in charge of a textile company in Wuhan City, Hubei Province believes that when the purchase of new seed cotton is expected to be only about 5.5 yuan/kg, market entities in the industry chain have too much enthusiasm to purchase old cotton. The Zheng cotton 2209 contract has entered the delivery month. Judging from the position, its final delivery volume is limited. The Zheng Mian 2211 contract not only has a large position, but has also continued to increase its position in recent days. It is estimated that Chen Mian has a higher probability of selling this contract.
According to Xu Tonghai, Federal Reserve Chairman Powell has recently issued more hawkish remarks on raising interest rates, and tightening policies will fundamentally solve the inflation problem. At the same time, the weather in major cotton-producing areas such as the United States has begun to improve. For example, the US cotton areas have received rainfall, and the growth and development status of US cotton has improved. In this context, investors who are long Zheng cotton and short US cotton must make an appropriate choice. At the same time, the trading time window given by the market is limited. The following are the main issues worthy of investors’ attention: First, on September 11, the U.S. Department of Agriculture will release the monthly agricultural supply and demand report for September. The second is the U.S. CIP report on September 13. The third is the opening price of domestic new cotton around September 15th. The fourth is the Federal Reserve’s interest rate meeting on September 22.
Data released by relevant domestic agencies show that compared with the previous year, so far, sales volume across the country and in major cotton producing areas in 2021/2022 has dropped significantly. For example, the national lint sales volume has decreased by nearly 2 million tons, and the sales volume in Xinjiang has decreased by nearly 180 tons. Thousands of tons. Before new cotton comes on the market this year, there will be a large amount of carryover inventory in the market.
The monthly report on the supply and demand situation of bulk agricultural products released by the Ministry of Agriculture and Rural Affairs in July shows that sales of domestic lint cotton are not smooth, and the weak quantity indicates that progress is slow. What is important is that the current market expectations for a bumper new cotton harvest have reached consensus, and there is recognition of the shrinking downstream demand.
However, some people in the industry believe that the reason why some investors are bearish on cotton is simply that the cotton market will have a serious oversupply situation. They excessively believe that Xinjiang cotton has “no way out” under the “tracing order”. They hold strong The philosophy of “butt determines head”. From a fundamental perspective, the market may not be so pessimistic. At a time when my country’s cotton and cotton yarn prices have become a “price depression” in the global market, the huge price difference will always be a great temptation for profit-seeking capital.
The launch of new cotton is like the top of Mount Tai
Zhang, the head of an agricultural cooperative in Hutubi City, told reporters that since August 7, an epidemic has occurred in some local areas, and some cotton gin workers have been “silent” for nearly a month, but epidemic prevention and control has not hindered cotton farmers. Regarding the management of cotton fields, the overall growth of local cotton this year is better than last year. However, the yields of different cotton fields may show a polarized pattern. The main reason is that the yields of cotton fields that cannot be irrigated with water are damaged, while the pattern of high yields of cotton fields that are irrigated with water has been determined.
“Last year, some cotton ginners could be leased out at a price of 8 million to 10 million yuan, but this year’s lease price was only 2.8 million yuan.” President Zhang said that many cotton ginneries currently don’t know what to do. First, they acquired the goods last year. Cotton losses are so serious that more than 90% of ginners are losing money. Second, ginners are currently strapped for funds. If they want to acquire new cotton after it comes on the market, they must first raise a deposit to be paid to a bank or a third party. Judging from the entities interested in getting involved in the new cotton acquisition market, there are relatively few new entities. At the same time, although banks and other financial institutions are currently willing to lend money to ginners to harvest new cotton, it is estimated that large-scale purchases will not occur in large numbers.
According to the reporter’s understanding, banks and other banks are not willing to repurchase the ginners that suffered large losses last year. Before the new cotton is launched, they are relatively supportive of the ginners launching new businesses. However, the market situation is too complex and the ginners alone cannot Resolve a series of problems. For example, if the purchase quantity is not enough, the shared production cost of lint will be higher, and if there is a “rush purchase”, it will directly increase the production cost. The market does need to be “reorganized.”
President Zhang told reporters that the opening price of hand-picked cotton in southern Xinjiang last year was around 8.7 yuan/kg, but it rose to more than 9 yuan/kg two days later. At present, hand-picked cotton has been sporadically listed in southern Xinjiang, and the market transaction price is 6.5 yuan/kg. Compared with the same period last year, there are currently no ginners in northern and southern Xinjiang who have opened scales for purchase. The estimated purchase price of seed cotton is 5.5-6 yuan/kg.
During exchanges with some industry insiders, the reporter learned that many large industrial enterprises and investment institutions plan to withdraw from the new cotton purchase market this year. For example, a cotton industry enterprise in Hubei and a large investment institution in Xiamen are likely to withdraw. Some people in the industry said that this year’s new cotton harvest is a foregone conclusion. The key issue now is who will purchase it. Faced with many difficulties, it is estimated that many ginners and traders will follow the cotton futures price to carry out business activities. By then the market The logic of the transaction will shift from the supply side to the consumption side, and new cotton will definitely be a “Taishan” that bulls need to face.
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