Since October 2021, global inflationary pressure has intensified, energy crisis expectations have increased, and funds have taken the opportunity to speculate on the rise of commodities. When northern hemisphere cotton began to be launched on a large scale, cotton prices bucked the trend and rose. After reaching a new high in the past 10 years, they turned to oscillation and weakened. What is the next trend of the market will be discussed in this monthly report.
Part One Review
1. International cotton prices soared sharply and turned to oscillation
Since October, against the backdrop of slowing macroeconomic growth, expectations of tightening monetary policy, and weakening domestic and foreign stock indexes, the futures market has become the main flow of capital. Capital speculation has soared in international cotton prices, and ICE cotton is the main force. The contract once rose to 116.48 cents/pound, hitting a 10-year high before turning to oscillation. As of October 29, 2021, the settlement price of the main ICE cotton futures contract was 114.85 cents/pound, up 12.91 cents/pound month-on-month, or 12.66%. The International Cotton Index (M) represents the average CIF price of imported cotton in China’s main port. The average price is 127.61 cents/pound, discounted by 1% tariff, and the import cost in RMB is 20,374 yuan/ton, a month-on-month increase of 11.38%.
2. Domestic cotton prices weakened after rising sharply
National Day holiday During this period, rain and snow weather occurred in the Xinjiang cotton area, and funds took the opportunity to speculate. Zheng cotton futures opened at the daily limit on October 8, and the cotton reserves were immediately released after the National Day holiday to ensure supply and stabilize the market. The state increased the joint supervision of the futures and spot markets, strictly Due to malicious speculation by Cha Capital, most commodity markets represented by black products fell sharply, and cotton prices subsequently weakened. As of October 29, 2021, the night settlement price of the main cotton futures contract on the Zhengzhou Commodity Exchange was 21,635 yuan/ton, a decrease of 1,325 yuan/ton, or 5.78%, from the high of 22,960 yuan/ton on October 18, representing The China cotton purchase price S index, which is the average price of white cotton grade 3 seed cotton and lint cotton in the country’s main cotton-producing provinces (regions), is 20,614 yuan/ton, a decrease of 1,319 yuan/ton, or 6.01%.
Figure 1 Domestic and foreign cotton futures price trends since 2020
3. The price difference between domestic and foreign cotton and cotton yarn has expanded rapidly, and the advantage of domestic yarn has weakened
After the National Day holiday, the price difference between domestic and foreign cotton has expanded rapidly, reaching more than 2,000 yuan/ton. This is 205% higher than the average domestic and foreign cotton price difference of 857 yuan/ton in the past five years, causing textile companies to face huge cost pressure in the short term. At the same time, after the National Day, the price of domestic yarn was more than 1,400 yuan/ton higher than that of foreign yarn. In the past five years, the price of domestic yarn was on average 89 yuan/ton lower than that of imported yarn. The cost-effectiveness of imported yarn is outstanding, which has an impact on domestic cotton consumption.
Part 2 Analysis and Outlook
1. Global cotton supply and demand situation
(1) Supply side
1. Domestic cotton supply dynamics
Old cotton inventory continues decline. In September, textile companies actively implemented the dual energy control policy, and the operating rates were generally lowered. Cotton demand weakened, and the decline in old cotton stocks narrowed. According to data from the China Cotton Association, the total national cotton turnover inventory at the end of September was approximately 1.0669 million tons, a decrease of 163,200 tons from the previous month. The decline was smaller than the previous month and lower than the 282,100 tons in the same period last year.
The central reserve of cotton continues to be released to promote the smooth operation of the cotton market. According to the requirements of relevant national departments, starting from October 8, the first batch of central reserve cotton will be released. In principle, about 15,000 tons will be released every legal working day. On October 30, the sales floor price policy will be further optimized. As reserve cotton continues to be released, textile companies have more options for raw material procurement, and it is difficult for domestic cotton prices to have room for upward breakthroughs.
More than half of Xinjiang’s cotton has been picked, and the purchasing market has cooled down. As of October 29, the national new cotton picking progress was 71.9%, a year-on-year decrease of 14.3 percentage points, equivalent to a cumulative processing of 1.377 million tons of lint cotton, a year-on-year decrease of 476,000 tons. The reason for the slowdown in harvesting and processing progress in Xinjiang this year is the tight harvesting fleet in Xinjiang, the high price of seed cotton, and the cautious acquisition of processing companies.
2. Trends in major foreign cotton producing countries
U.S. new cotton Maturity lags behind, affecting harvest progress. According to data from the U.S. Department of Agriculture, as of October 24, U.S. cotton cotton harvesting progress was 91% and harvesting progress was 35%, respectively 4 percentage points and 6 percentage points lower than the same period last year, and 1 percentage point and 6 percentage points lower than the average of the past five years. 6 percentage points.
The purchase of Indian seed cotton is in full swing, and the market price is higher than the minimum purchase price. Seed cotton procurement is in full swing across India. The Indian Cotton Association predicts that India’s cotton output this year may remain at last year’s level, about 6.12 million tons. Cotton Corporation of India (CCI) stated that recent market prices are well above the minimum purchase price (MSP), which means that CCI does not need to carry out any market intervention this year.
Pakistan’s new cotton market volume is close to 900,000 tons. As of October 15, the volume of Pakistani seed cotton on the market was about 890,000 tons of lint cotton, an increase of 94% over the same period last year. The Ministry of National Food Security and Research of Pakistan stated that Pakistan’s cotton output is expected to reach 1.58 million tons this year.
More than half of Australia’s new cotton crops have been sown, and output is expected to hit a new high. Australia’s 2021/22 cotton sowing is underway. Due to recent rainfall, some areas need to be replanted. However, the soil moisture is extremely sufficient, and new cotton production is still expected to reach 1.09 million tons or more, which may be the third highest level in history. <, the policy of dual energy consumption control and power rationing has been promoted, and the startup rate of textile enterprises has generally declined. According to the survey, more than half of the companies reported that the operating rate dropped by 40-60%, and the proportion of companies with reduced orders for cotton yarn and cotton cloth reached 38% and 42% respectively. If the demand side cannot provide effective support, prices may recover downwards and resolve the stalemate between upstream and downstream.
4. After the new cotton is launched on a large scale, the cotton market will be under pressure
In the context of stable domestic cotton production, the new cotton market will be under pressure. Cotton will be put on the market in mid-to-late November. US cotton and Indian cotton will also gradually arrive in Hong Kong. With the continued release of reserve cotton, the market supply will reach the most abundant period of the year. Next, the sales pressure of new cotton will gradually appear, and the cotton market will Will be under pressure.
5. Price and value deviate, and the market will eventually return to normal logic
From 2020 to 2022, Xinjiang cotton farmers will enjoy 18,600 yuan/ The support of the ton target price subsidy policy ensures the stability of planting. Due to the promotion of machine-picked cotton, the cost of domestic cotton planting in my country has gradually declined, and is expected to not exceed 13,000 yuan/ton. Under capital speculation, the current market price even far exceeds the planting cost and the target price level of 18,600 yuan/ton. The price and value seriously deviate. The capital speculation is very obvious. After the country intensifies macro-control, the cotton market and price mechanism will Return to normal market logic.
Part 3 Production, Sales and Inventory Forecast
1. Global cotton production increased in 2021/22 , production and demand levels are basically flat
The International Cotton Advisory Committee (ICAC) October global cotton production, sales and inventory forecast data show that the global cotton opening inventory in 2021/22 is 20.11 million tons, a month-on-month decrease of 550,000 tons. 2.66%, a year-on-year decrease of 2.04 million tons, a decrease of 9.21%; global cotton production was 25.75 million tons, a month-on-month increase of 820,000 tons, an increase of 3.29%, a year-on-year increase of 1.56 million tons, an increase of 6.45%; consumption was 2,590 tons, a month-on-month increase of 30,000 tons , an increase of 0.12%, a year-on-year increase of 210,000 tons, an increase of 0.82%; the ending inventory was 19.96 million tons, a month-on-month increase of 240,000 tons, an increase of 1.22%, a year-on-year decrease of 150,000 tons, a decrease of 0.75%; global cotton production is insufficient, requiring 150,000 tons, It is 790,000 tons narrower than that of 2020/21; the global cotton ending inventory consumption ratio is 77.07%, a decrease of 1.21 percentage points from 2020/21.
II. The domestic cotton production and demand gap narrowed in 2020/21
Based on relevant special surveys and analysis of domestic and foreign economic environments and market conditions, this issue of the National Cotton Market Monitoring System’s forecast of domestic cotton production, sales, and stocks in 2020/21 and 2021/22 continues the previous month’s view:
In 2021/22, China’s cotton output was 5.68 million tons, a year-on-year decrease of 4.54%; consumption was 8.24 million tons, a year-on-year decrease of 4.3%; import volume was 2.31 million tons, a year-on-year decrease of 15.90%; the ending inventory was 599 million tons, a year-on-year decrease of 4.59%; the production-demand gap was 2.56 million tons, 100,000 tons narrower than in 2020/21.
Main conclusions
To sum up, the Delta mutant strain continues to spread, global logistics congestion and high inflation are intensifying, the Federal Reserve is gradually tightening monetary policy, and global stock markets and commodities have cooled down significantly. Domestic macroeconomic policy controls have been intensified, and the rapid surge in cotton prices has gradually weakened. As new flowers are gradually launched on a large scale in 2021, the cotton market will enter the most abundant supply time window of the year. Downstream demand concerns continue, and cotton prices are returning to fundamentals. </p
