Affected by the dual impact of weakening fundamental expectations and macroeconomics, U.S. cotton has fallen sharply recently. The U.S. dollar raised interest rates sharply in June, and the market is worried about economic recession. Commodities have also seen continuous sharp adjustments recently. U.S. cotton rebounded strongly on Wednesday after a series of sharp losses and once again hit the intraday daily limit.
Regarding the performance of U.S. cotton, industry insiders believe that on the one hand, it is the price recovery after continuous declines, and on the other hand, after cotton prices have fallen from highs, there is a certain amount of buying demand support.
“Although supply and demand are expected to be loose in the long term, the short-term decline in U.S. cotton has restored the profits of downstream industries to a certain extent. With the recent decline in international cotton prices, the processing profits of Southeast Asia’s main domestic textile companies may have recovered.” Cao Kai, analyst at SDIC Essence Futures, said.
From the perspective of supply and demand expectations in the new year, although cotton supply is likely to gradually loosen, drought continues in Texas, the main cotton-producing area of the United States, and there are still large variables in supply and demand in the new year. After experiencing continuous sharp declines, prices have recovered upwards.
It is understood that the current drought in the United States is severe, and precipitation in Texas is generally insufficient. Currently, 81.2% of the soil area in Texas is in moderate drought or above, compared with only 12.6% in the same period last year. This is the most serious drought since 2011.
“As of June 19, the sowing progress in the United States is 96%, and the budding rate is 22%. The overall progress is relatively fast. However, the high-quality rate of U.S. cotton has been declining for two consecutive weeks. It is currently only 40%, a decrease of 12% year-on-year. The short-term drought is still There are no signs of relief, and Texas production is likely to be lower than in previous years due to the high abandonment rate.” Bian Shuyang, an agricultural product analyst at Nanhua Futures, said that the U.S. Department of Agriculture will announce the 22/23 planting area at 0:00 a.m. on July 1, Beijing time. According to the report, the market has shown serious concerns about the production in the new year, and it is predicted that the actual sown area may be lower than the previous intended planting area, which will support the rise of cotton prices.
“Excessive pessimism in the early market sentiment caused US cotton to oversold, and it will naturally rebound after the sentiment stabilizes.” Xie Ziqi, head of the agricultural product group of Guangzhou Futures, said that the fundamentals of US cotton itself are not weak, and its trend should be stronger than the commodity average. According to the USDA global cotton supply and demand forecast in June, the U.S. cotton inventory-to-consumption ratio in 2022/23 is 17.05%, which is a situation of extremely tight supply. Even if demand weakens, it will only adjust supply and demand toward a balanced direction, and there is no deep trend. The basis for falling.
Judging from the domestic cotton market, after continuous sharp declines, cotton yarn has also stopped falling and rebounded in recent days.
In this regard, Cao Kai explained that the recent rebound of domestic Zheng cotton is due to the impact of external market conditions. It is more of a rebound after a short-term price decline.
“From the perspective of domestic fundamentals, continued weak demand has led to excess cotton supply, downstream orders are still weak and cotton yarn inventories are at historically high levels. Short-term fundamentals have limited support for cotton prices, but from a medium-term perspective, cotton prices are between 16,000 and 16,000. There is some support near 17,000 yuan/ton,” Cao Kai said.
“As cotton prices fall, the processing profits of textile companies are restored, and the demand for gold, silver, and silver products may improve. Short-term commodities have rebounded after experiencing a sharp decline. The bearish sentiment in the cotton market has been released, and there is also demand for a price rebound.” In his view, cotton’s fundamental support is still weak in the short term, and the current rise is treated more as a rebound.
The reporter learned that since the beginning of this year, continued weak demand coupled with the impact of the epidemic has resulted in sufficient supply of cotton; during the decline in cotton prices, the lack of support from strong demand has made cotton perform even more weakly in the context of macro shocks and commodity slumps.
“Judging from the current fundamentals, the long-term weak pattern of cotton may continue, but the short-term strength of Zheng cotton is more likely to be treated with a rebound mentality. Whether the weak fundamentals of domestic cotton can improve still depends on the depletion of downstream inventories and future demand. performance.” Cao Kai said that July is still the traditional off-season for demand, and whether the market can expect an improvement in demand still depends on the performance of demand before and after the Golden Nine and Silver Ten.
Similarly, in Xie Ziqi’s view, cotton’s logic of being driven by low consumption is difficult to reverse in the short term unless there are obvious signs of improvement in downstream orders. According to Xie Ziqi, external U.S. cotton is mainly used for export, while domestic cotton is used to make cotton yarn. The direct consumption uses of the two are different. Downturn in terminal consumption may have a greater impact on domestic cotton prices.
In terms of supply, the main cotton-producing areas of the United States are still troubled by drought and high temperature, and a small amount of precipitation is not enough to reverse the poor weather situation in the main producing areas. Domestic cotton planting in Xinjiang is progressing smoothly, but the possibility of other weather conditions in the later period cannot be ruled out. “Overall, the support of US cotton is stronger than that of Zheng cotton, and the price difference between the two may expand again in the future.” Xie Ziqi said.
“At present, the overall fundamentals of domestic cotton have not changed much. The cotton series remains weak, and downstream demand has not improved significantly. It is expected that it will maintain a weak oscillation after a short recovery. As for the external market, the current demand for textile and clothing in the United States is also weak, and overall Consumption has been downgraded and clothing inventories are in a state of accumulation. However, if it is determined that the actual sown area of US cotton has been significantly reduced and production has been seriously reduced in the new year, it will form a strong support for cotton prices in the short term. In the long term, we need to pay attention to the recovery of downstream demand.” Bian Shuyang said.
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