After the National Day, the previously strong cotton price began to turn downward. Factors such as new cotton harvest pressure and changes in market expectations, as well as the continued rotation of reserve cotton in October and lack of improvement in downstream demand, caused cotton prices to continue to weaken and are currently close to Low in late June. The actual purchase price of cotton in Xinjiang has been lowered, which has pushed down the price of lint cotton. The weakening futures price has caused ginners to lower their purchase prices, which seems to have entered a downward spiral. Downstream demand weakened, overseas orders were delayed, and ICE cotton futures also fell accordingly. Under the pressure of many negative factors, when will cotton’s decline change?
The resonance between spot and futures makes cotton prices fall
After the National Day, there were rumors in the market that cotton production was reduced in some areas of northern Xinjiang, but it was soon confirmed that it was only in local areas. The cotton yield in southern Xinjiang was almost the same as last year. Zheng cotton futures opened high and started to trend lower. Initially, the opening price of Xinjiang seed cotton was 8.1-8.2 yuan/kg. Calculated based on 40% lint content and cotton seed price of 2.8 yuan, the cost of lint exceeded 18,100 yuan/ton. Ginning companies tried to purchase a small amount, but after the futures price fell, considering Some policy banks only provide loan support of 7.5 yuan/kg, and the wait-and-see mood of cotton ginning companies has gradually increased. As futures prices continue to fall, ginners continue to try to lower prices. The mainstream transaction price has dropped to 7.8 yuan/kg, and the lint cost has dropped to 17,300 yuan/ton, further putting pressure on futures prices. If the transaction price of seed cotton drops to 7.5 yuan/kg in the later period, the cost of new cotton will be reduced to 17,000 yuan/ton. If you sell hedging at the current Zheng cotton futures price, you will still make a profit of nearly 500 yuan/ton.
When will the mutual negative influence between domestic spot goods and Zheng cotton end?
When both spot and futures prices change, the two factors will influence each other and be difficult to stop. If one of them is basically certain, then the other factor will be relatively easy to predict. When the Xinjiang seed cotton purchase ends, the impact of futures prices on the seed cotton purchase will be eliminated. According to the purchase time of seed cotton in previous years, the purchase of northern Xinjiang was basically completed in October, and the purchase of most seed cotton in Xinjiang was nearing completion at the end of November. This year, the seed cotton in some areas of Xinjiang has a high moisture content, and failure to deliver it in time will affect the quality of the cotton. Therefore, it is expected that the purchase will be earlier than last year. When the acquisition is completed, the cost of lint is basically determined. If the price drops significantly, ginning companies will be reluctant to sell, thereby reducing supply and reducing hedging willingness, which will have a positive impact on futures prices.
Conjecture on cotton price stabilization in the later period
The reduction in U.S. cotton production has allowed ICE cotton to gradually bottom out. In this round of U.S. cotton adjustments, it is expected that there will be little room for decline after falling to 80 cents. Judging from the current purchase price of seed cotton in Xinjiang, the recent transaction price has gradually dropped to 7.5-7.8 yuan. It is expected that the probability of falling below 7.5 yuan is small. It is inferred that the cost of lint cotton is about 17,200 yuan/ton; if the purchase cost continues to decrease , against the background of the stabilization of 80 cents in the external market, the purchase price of seed cotton fell back to 7.2-7.3 yuan, and the cost of lint is not expected to be less than 16,600 yuan/ton. At this time, it is estimated that cotton farmers will be reluctant to sell and ginners will actively purchase to achieve resonance, and the cotton sales will come to an end.
The main factor behind the current decline in cotton is the market’s psychology of buying up rather than buying down. The drop is not due to a huge drop in downstream demand. It is understood that gray cloth factories have been digesting cotton yarn inventories and have maintained them at low levels. Export orders have not improved significantly. When prices gradually stabilized, cotton prices have fallen back to the level before the reserve cotton auction, and the absolute price is not high. Demand will naturally improve.
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