After the Spring Festival, the Zheng cotton contract surged higher and fell back. Among them, the CF2205 contract rose from 21,495 yuan/ton a year ago to a maximum of 22,210 yuan/ton. However, at prices above 22,000 yuan/ton, hedging orders ran away, and the price increase was weak and the price fell back. to around 21,600 yuan/ton. Regarding the reasons for the high fluctuation of Zheng cotton and the focus of future market conditions, the analysis by relevant agency personnel is as follows:
USDA February monthly report lowers global cotton production
According to the February supply and demand forecast released by the United States Department of Agriculture, global cotton production was reduced by 180,000 tons to 26.16 million tons, mainly due to a reduction of 110,000 tons in India. In addition, global ending stocks were reduced by 150,000 tons to 18.36 million tons, a decrease of 0.8%, mainly due to large decreases in ending stocks in India (down by 70,000 tons), China (down by 60,000 tons), Australia, Mexico and other countries. Overall, the adjustment in India’s cotton production has a significant impact on this USDA report. Since the market volume of Indian seed cotton is significantly lower than the same period, cotton companies rushed to harvest seed cotton, causing a sharp rise in Indian cotton prices. As the Indian cotton market comes to an end, USDA will have limited room to continue to lower global cotton production and ending stocks in the later period.
In terms of U.S. cotton, there will be little change in the U.S. cotton balance sheet in 2021/2022. Cotton planting area expectations, harvest area expectations, and yield expectations remain unchanged from January data; cotton exports are reduced by 250,000 bales due to logistics impacts, and ending stocks are increased by 3,000 bales. It was 3.5 million bales, mainly due to a decrease in export shipments. As of the week of January 27, the total contracted volume of US cotton this year was 2.809 million tons, and the cumulative export shipment volume was 926,000 tons, accounting for 33.0% of the total annual contracted volume. The shipment progress is obviously low. In the later stage, we need to pay attention to whether the US cotton shipment volume can be increased. After the release of the USDA report, U.S. cotton performed relatively calmly, mainly with a correction.
Waiting for downstream construction to fully restart
The market is optimistic about the “gold, three, silver and four” orders, and most downstream companies are currently in the early stages of restarting. According to statistics from relevant agencies, as of February 11, the start-up load of cotton yarn mills was 55.1%, and the start-up load of cotton fabrics was 45.7%, which has basically returned to the start-up level a year ago. According to research, the length of holidays for textile factories varies. Some textile factories in Shandong and Henan have a very short Spring Festival holiday, while Hubei textile factories have a one-month Spring Festival holiday, depending on the orders of each factory; in previous years, weaving factories have a holiday on the 20th day of the first lunar month. Weaving factories in some areas of Jiangsu have not yet started operations. The epidemic in Guangxi has affected workers’ return on time after the holiday, and some weaving factories may delay their start-up.
In terms of cotton yarn prices, the quotations of cotton yarn traders who have started operations have generally increased by about 1,000 yuan/ton compared with the previous year. However, downstream companies are still on holiday, and the quotations are high but not marketable. According to statistics from relevant agencies, as of February 11, the inventory of raw materials in spinning mills was 28.9 days, and the inventory of finished products was 27.5 days. The inventory of raw materials dropped, and the inventory of finished products remained unchanged. The inventory of cotton yarn in weaving factories is 10.8 days, and the inventory of finished cotton gray fabrics in weaving factories is 30.8 days. Similarly, the inventory of raw materials increased slightly and the inventory of finished products decreased slightly. The cotton yarn inventory in weaving factories is at a low level. If the “Gold, Three, Silver and Four” orders are good, weaving factories will have a need to replenish their stocks. Only then will the price of cotton yarn finally rise, thus forming a positive feedback to the upstream. Therefore, it is still necessary to wait for the downstream to start and run for a period of time before making a decision.
Pay attention to the hedging pressure above the market
Due to the relatively slow sales progress of ginners’ lint cotton, the cargo rights are relatively concentrated at the ginners’ end. A small part of the cargo rights flowed into current merchants at the end of last year, so the ginners are under greater pressure to ship. Considering that the acquisition cost last year was relatively high, concentrated at 23,000-25,000 yuan/ton, and the ginners still faced financial pressure for repayment in April and May, the hedging pressure of the ginners needs to be resolved urgently. Therefore, when the price is above 22,000 yuan/ton, hedging orders from ginneries are gradually jumping in. We will continue to pay attention to the hedging pressure above the high level of 22,500 yuan/ton.
Future focus of the CF2205 contract
Downstream companies have not yet fully started operations, and the main contract of Zheng Cotton fluctuates with that of US cotton. Since there are still unpriced contracts for US cotton, there is still a strong momentum for operation in the future. In the later period, as downstream companies started construction, the Zhengmian 05 contract also ushered in several major highlights.
First of all, pay attention to whether the “Gold, Three, Silver and Four” peak season orders can be landed as scheduled. At present, the market has high expectations for the peak season. The risk of the peak season mainly lies in the US sanctions on Xinjiang cotton. If the US orders continue to be traced and reject Xinjiang cotton, it will have a greater impact on foreign trade order procurement. Downstream companies will need to use imported yarn instead, which will affect domestic sales orders. no effect. Secondly, whether there will be bad weather during the planting season. March-April is the planting season for cotton in Xinjiang, and April-May is an important period for cotton seedling emergence. Bad weather such as low temperature and rainy weather will directly affect the cotton seedling emergence. If extreme weather occurs in Xinjiang in April, there is a possibility of market speculation. This topic has basically appeared in the past years. Whether the cotton production reduction can be successfully implemented in the later period also needs to pay attention to the replanting situation in May.
Overall, in the short term, Zheng cotton mainly fluctuates with the high price of US cotton. There is cost support below the price, and there is hedging pressure at the high price above. The weather and policies of the main producing countries during the planting season are also the focus of future attention. In the long run, the trading focus of the Zheng Cotton 09 contract is whether the 05 contract can realize the return of futures and current prices under the support of multiple profits, thereby transferring the cargo rights and opening up a new trading logic. If the 05 contract still does not complete the futures and current return logic, then This logic will continue to be interpreted in the 09 contract.
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