Recently, Zheng cotton futures have been singing triumphantly, setting new highs repeatedly. The highest point once reached 22,200 yuan/ton, which was the highest point in the past ten years. However, even in the market situation ten years ago, cotton prices remained at 22,200 yuan/ton. It has only been above 20,000 yuan/ton for more than four months. The current cotton price is indeed very high.
Most market participants believe that the current cotton price is already at a high level, and risks are increasing for both ginning companies and textile companies, and they may fall into passivity if they are not careful. Under the continuous regulation and control by the state, cotton prices have finally stepped on the brakes recently, and the soaring momentum has been curbed.
Reserve cotton transactions are active and cotton prices rise at the bottom
25,000 tons of cotton reserves are released daily Basically, cotton prices will face great pressure if they continue to rise from high levels. Of course, a deep drop is unrealistic. According to the transaction data of reserve cotton, on October 13, the average transaction price of reserve cotton was still above 18,000 yuan/ton, but it was still the cheapest cotton on the market, and the highest transaction price of Xinjiang cotton was still 22,000 yuan/ton. Therefore, The bottom of cotton prices has risen significantly. It is foreseeable that in the future, it is unrealistic to expect Zheng cotton to return to 18,000 yuan/ton.
The acquisition market remains stable and the cost of new cotton is locked
During the National Day, the purchase price of seed cotton increased from 9.5 yuan to 9.5 yuan. Kilograms have risen to a maximum of about 11 yuan/kg, and the equivalent cost of lint is as high as more than 25,000 yuan/ton. With the recent correction of futures prices, the seed cotton purchase market has gradually cooled down. Many ginners have stopped production, reduced harvests, or purchased at reduced prices. Cotton farmers are resistant. However, in anticipation of a cooling market, the stalemate between cotton farmers and ginners has improved. Due to concerns about rain and snow in the future and the continued decline of cotton prices, some cotton farmers have begun to sell, and some farmers are holding their cotton on the sidelines. At present, the selling price of Xinjiang cotton is concentrated at more than 10.5 yuan/kg, which is equivalent to the cost price of lint cotton at 24,000 yuan/ton.
The production of new cotton has come to an end and the supply-side speculation has come to an end
Currently, Xinjiang is actively harvesting new cotton. Cotton, the time window for new cotton production to be available for speculation is closing. According to survey data from the National Cotton Market Monitoring System in late August, the national average cotton yield in 2021 is expected to be 133.8 kg/mu, an increase of 1.8% from the June survey results. Based on the survey results of the actual sown area in May of 42.463 million acres, the total cotton output in 2021 is expected to be 5.680 million tons, a year-on-year decrease of 4.5% and an increase of 102,000 tons from the June survey results. Xinjiang’s cotton output is expected to be 5.149 million tons in 2021, a year-on-year decrease of 1.9% and an increase of 132,000 tons from the June survey.
According to cotton professionals, Xinjiang’s cotton output has decreased to a certain extent this year, mainly due to low clothing scores, with more than 42% already having high clothing scores. The price of seed cotton is high this year, and most farmers are considering resuming harvesting, which will offset production to a certain extent. In addition, last year’s high yield was at the expense of quality, and this year’s is a normal quality indicator in a normal year.
With the tightening power restriction policy, downstream consumption has become the key
Entering the fourth quarter, as the temperature gradually decline, domestic electricity consumption for heating has increased, and energy issues continue to be highlighted. The power rationing policy that started in Jiangsu and Zhejiang in September is spreading nationwide. In the short term, power restrictions have suppressed consumption and limited the increase in cotton prices to a certain extent. From another perspective, power restriction measures have led to an increase in the price of cotton spinning products. When the company’s operating rate decreases, product supply decreases, stimulating price increases. On the contrary, it has supported cotton prices.
Zhejiang cotton yarn traders said that the recent excessive rise in cotton prices was quickly transmitted to the yarn end. The yarn price increased by 2,000 yuan/ton compared with the previous period, but it continued to be passed on to the downstream. The reason is that cotton prices have risen too sharply, and it will take time for downstream companies to accept it. After all, when sea freight is at a high level, end-product prices are facing greater export pressure. If prices rise slowly, downstream companies will be more likely to accept it. Faced with the rapidly rising cotton prices, downstream cloth mills either stopped production and took holidays, or reduced production and gave up accumulated inventory. In the long run, downstream consumption is recovering, demand for products is gradually increasing, and power rationing reduces corporate inventories, which is conducive to the healthy operation of the industrial chain.
It will take time and space for cotton prices to change from high to high.
Once the high cotton price trend is formed, it will be very long. It is difficult to change, and the same is true for other products. This wave of cotton has climbed to a high of more than 20,000 yuan/ton. It is normal to see a correction under short-term pressure. We cannot simply think that the upward trend in cotton prices has ended. Even if you don’t think there is room for cotton prices to rise, you can’t simply think that cotton prices will start a downward trend. The prices of reserve cotton, commercial cotton, new cotton and foreign cotton that can be purchased in the market are now at high levels. With strong support from the spot market, it is difficult for futures prices to get out of an independent downward trend.
Currently, spot prices have inverted, and the magnitude of the inversion is relatively large. It is less likely that the price will continue to fall sharply and widen the gap. Of course, extreme events cannot be ruled out. Once futures prices fall deeply, it will be more cost-effective for companies to purchase warehouse receipt cotton. Looking at the price of foreign cotton arriving in Hong Kong, it is close to 20,000 yuan/ton, which is also the highest level in the past ten years. With domestic and foreign cotton prices at high levels, it is too early to expect a turnaround in cotton prices in the short term. Sure enough, Zheng Cotton rebounded strongly on October 15th, and the trend of strong operation did not change.
From the perspective of cotton substitutes, due to the sharp increase in oil prices, chemical fiber prices have also increased significantly. The price of polyester shorts has exceeded 8,000 yuan/ton, and the price of viscose has also increased. �The price remained above 13,000 yuan/ton, which supported cotton prices. The world is currently in an energy crisis, and the strong trend in oil prices has taken shape and will not change in the short term. This has a great impact on global commodity prices. Although the amplitude of the cotton price, which was already at a high level, has increased significantly, it is difficult to say that it has formed a downward trend.
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