Last week (June 13-17), Zheng Cotton finally started its decline after a short period of shock and consolidation. The lowest point of the main contract of CF2209 fell to 19,480 yuan/ton, and the important support of the 20,000 mark was broken. The cotton market began to weaken.
Last week, the trigger for the sharp decline in domestic and foreign cotton markets was the Federal Reserve’s 75 basis point interest rate hike, which was the Fed’s largest single rate hike since November 1994. As the U.S. inflation rate has reached a very serious level, Federal Reserve Chairman Powell reiterated during a hearing before the U.S. Senate Banking Committee that it will “do whatever it takes to curb inflation,” causing the three major U.S. stock indexes to continue to close lower. Pessimism in the global financial market has fermented, and commodities have made a sharp correction. Among them, the price center of Zheng cotton fell below the 20,000 support, opening a price range starting with the word “1”.
Although Zheng cotton has continued to plummet, the enthusiasm of downstream point-price purchases is not high. Traders and downstream textile companies are still pessimistic about the market outlook, worried that prices will continue to fall in the future, and still focus on replenishing stocks for rigid needs. At present, some ginning companies have low hedging rates and still hold a large amount of spot resources for sale. With Zheng cotton falling below the 20,000 mark, there are few hedging opportunities left for companies. The pressure on companies has increased, and some companies have Reluctant to sell, looking forward to price rebound before selling. It is reported that as of June 16, the sales progress was only about 61%.
Last week, the National Cotton Market Monitoring System released a survey report on the actual cotton sowing area. In 2022, the actual cotton sowing area nationwide was 44.281 million acres, an increase of 1.091 million acres year-on-year, an increase of 2.5%. Among them, the actual cotton sowing area in Xinjiang was 36.904 million acres, an increase of 1.344 million acres year-on-year, an increase of 3.8%. At present, cotton in Xinjiang has gradually entered the budding stage, with the budding ratio at about 80% and the plant height of cotton seedlings at 50-60 cm. Cotton is growing well across Xinjiang, and cotton farmers expect this year’s output to be higher than last year’s.
As cotton prices have fallen sharply, downstream spinning costs have dropped and profits have improved. However, companies have fewer orders and the startup rate is not high. Smaller companies have reduced operating pressure by extending holidays or reducing production shutdowns, while some larger companies have basically maintained normal production in order to prevent the loss of employees. Due to slow sales of cotton yarn, inventory has accumulated.
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