As we are about to enter 2022, the cotton purchase work in Xinjiang has been completed, and lint processing, warehousing, and public inspection have also come to an end. However, the situation of cotton futures and spot prices being inverted since October has not been reversed, and the overall purchase and sale in the cotton market is weak. Under the current situation, the sales progress of Xinjiang cotton in 2021/22 has dropped sharply compared with previous years, and it is inevitable that ginning companies will face high inventory and financial pressure.
There is still about a month left before the Spring Festival, and cotton processing companies are waiting to see cotton. The main manifestations are as follows: First, companies with relatively sufficient funds and low loan repayment pressure are reluctant to sell. Some cotton companies are optimistic about March or May next year. In the domestic cotton futures market after March, there are no plans to sell at a loss; secondly, companies that have temporarily solved the problem of financial constraints by selling some batches of lint and cotton seeds also choose to wait and see before and after the Spring Festival, but considering the loan repayment and other expenses in March pressure, we plan to continue to sell a certain proportion of lint to achieve the purpose of reducing risks. Recently, some Xinjiang cotton resources with low basis but good spinnability have continued to increase in the spot market; thirdly, the cash flow of ginning enterprises with slow lint sales and large amounts of unsold cotton seeds is very tight. In order to solve the urgent need before the end of the year, on the other hand, we adopt models such as warehouse receipt pledge to obtain working capital and achieve a smooth transition.
At present, the Zheng cotton CF2201 contract has entered the delivery month, and the pressure of some ginning companies that entered the market for hedging at 22,000-23,000 yuan/ton has been temporarily relieved. However, the comprehensive cost of lint cotton in storage and the main contract price are inverted by more than 3,000 yuan/ton, unless There will be great benefits in the first quarter of 2022, otherwise it will still be very difficult for Xinjiang ginning companies to hedge on the market.
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