The Extraordinary Leap Of Cotton In China

Attracting large sums of money into the market

According to the statistics from China Futures Association, the cotton futures which have been listed for 6 years have become the most growing varieties among the 23 existing commodity futures varieties in China.

China's futures market is in the critical stage of the expansion from volume expansion to qualitative upgrading. Last year, commodity futures trading volume accounted for 43% of the world's total turnover and ranked first in the world.

In August and the first 8 months of this year, the volume of commodity futures trading was 625% and 1183% respectively, compared with the same period last year.

Since September 7th of this year,

"In all agricultural products, we are most optimistic about cotton, and we have invested most of our money in cotton futures."

On the 10 day of the forum, the reporter heard many Futures Company leaders at the meeting said so.

Since September 7th, the single day trading volume of the cotton contract of Zheng Shang has broken through 1 million hands, that is, 2 million 500 thousand tons, which is equivalent to about 1/3 of cotton output in China.

"Since cotton was listed on Zhengshang, I have a wish or a belief that the amount of cotton trading in zhengmian should exceed the cotton trade volume in New York.

And this week, this historic moment has finally arrived.

The 1 million hand trading volume is 30% higher than that of New York cotton in the single day maximum paction volume.

Chen Tao, chairman of Louis Da Fu (Beijing) trading limited liability company, said excitedly.

Louis Da Fu is a subsidiary of Louis Da FOK International Group, one of the four largest grain and oil companies in the world. Its business in China has reached 35 billion yuan.

Chen Tao said at the Forum: "we all know that China is the largest in the world.

Today, cotton and sugar have become the "first household flower market" of the first domestic futures market pilot unit.

"For cotton companies, it is necessary to study and participate in the futures market. Louis Da Fu fully advocates the use of futures market to avoid risks. All our pactions in the spot market have hedged in the futures market."

Chen Tao said.

"Such a high price of cotton in 10 years is like dancing on the edge of a precipice, and at any time there may be risks.

Under such circumstances, it is a good choice for cotton enterprises to use futures market to avoid risks.

Feng Mengxiao, chief information officer of China cotton storage information center, analyzed the reason why the cotton futures market was so hot. "This year's cotton market is very different from last year. Last year's cotton prices were low and high," and this year's price has reached a high of 18 thousand yuan / ton and 19 thousand yuan / ton without breaking the shadow of the international financial crisis.

Chen Tao believes that in today's high cotton prices, cotton consumers can lock in production costs through futures markets, and cotton producers can use the futures market to determine the selling price.

Moreover, there is a tight supply in the cotton market.

"To what extent is it nervous? You ordered cotton imports in August, and you can't buy the cotton that arrived in December."

Chen Tao said that if a cotton enterprise is conscious and able to make use of futures tools, it will avoid the losses caused by such situations to the business operation.

The futures market is a high-risk market, but the futures market is not just a speculative place. The main purpose of our futures market is to provide a risk aversion tool for the real economy.

Nowadays, more than 90% of the domestic oils and fats industry dominated by foreign capital can successfully use futures market to avoid the risk of price fluctuation.

In recent years, the market scale of the Zhengzhou Mercantile Exchange has expanded steadily, and the market function has been exerting increasingly.

From the market volume and paction volume, cotton futures trading has been on the rise since the launch of cotton futures. As of the end of August this year, 109 million cotton futures contracts have been accumulated, and the turnover has exceeded 8 trillion and 330 billion yuan.

Cotton industry uncertainty contrasting futures hedging advantage

Cotton is an important economic crop and an important strategic material related to the national economy and the people's livelihood. The state macro management department attaches great importance to the healthy development of the cotton industry.

Sima Shuping, deputy director of the Ministry of agriculture, said that at present, the problems faced by China's cotton industry are bigger, and the difficulty of stabilizing the cotton industry is also increasing.

Objectively speaking, there are many uncertainties in the development of the cotton industry, which highlights the function of futures hedging and stimulates the development of futures varieties to a certain extent.

At present, the comparative advantage of domestic cotton is weakening, and cotton is not as good as grain as industrial raw material and grain.

The rise and fall of cotton prices has made cotton farmers do not have a good expectation on cotton production, which is bound to damage the enthusiasm of cotton growers.

Moreover, cotton has more labor, 4 times of wheat planting, 3 times of corn cultivation and 2.5 times of rice planting.

With such a large amount of labor, cotton enterprises can not adapt to the pfer of large quantities of labor force, and the labor structure of cotton enterprises can not meet the needs of current industrial development.

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"From the point of view of policy support, China's food security is the first place, and the planting area of grain and cotton is basically in the same area. The state has more subsidies on grain, while the subsidy for cotton is relatively small, which will also have a certain impact on the enthusiasm of cotton farmers."

Ma Shuping said.

In recent years, cotton production in China's three major cotton regions, the Yangtze River Basin, the the Yellow River River Basin and the Xinjiang region, has changed.

The cotton in the Yangtze River Valley and the the Yellow River river basin is facing the pattern of competing with grain. The state grain production is subsidized and mechanized. However, the mechanization of cotton production in these two regions is limited and requires a large number of labor force, which is not consistent with the pfer of Chinese labor force to cities.

As a result, cotton production in China has shifted to the central and western regions in recent years, and cotton production in Xinjiang has accounted for 40% of the country's total cotton production.

Liu Xiaonan, deputy director of the Department of economic and trade circulation of the national development and Reform Commission, put forward a long-term mechanism to promote the development of cotton industry.

He said, "in the long run, I am afraid we still need to study a new mechanism, or policy, that can not only make the market mechanism play a role, but also effectively protect the reasonable income of cotton farmers".

He believed that we should further improve the cotton production area, including the textile statistics system, and establish a relatively authoritative information release system to guide the market.

In addition, in the circulation processing enterprises of cotton, some of the backbone enterprises have more and more influence on the market, but small businesses still occupy the majority.

Under such circumstances, how can these backbone enterprises play a better role in stabilizing the market and stabilizing prices in protecting circulation and coordinating production and marketing, and in keeping with the basic objectives and objectives of macroeconomic regulation and control, we need further exploration.

Ma Shuping pointed out that, in the future, the development of cotton production in China will be limited. The only way out is to increase the unit area yield and increase the yield per unit area. The key is to play the role of science and technology.

Ma Shuping said that to stabilize the development of cotton production, we must adhere to the market and macro policy support.

The production link of cotton is the most vulnerable link in the whole production process. The stability of this link is conducive to overall stability.

"The stability of this link is totally unworkable by marketization, and the state's macro regulation and control policies must keep up. No matter whether the subsidies for grain and agriculture, comprehensive subsidies for agricultural subsidies or agricultural insurance, including the base construction of cotton, we should further increase input so as to improve the comprehensive production capacity and stabilize cotton production."

Liu Xiaonan also suggested that we should continue to promote the structural reform of cotton and improve the quality of domestic cotton.

In addition, we should strengthen the construction of cotton commodity system.

Nowadays, the role of the futures market is becoming more and more important. All parties need to further improve relevant systems and relevant trading rules, and guide the active participation of market participants.

Cotton production reduction in the new year, tight global supply

The cotton growth index released by China Cotton Association in August showed that the cotton output per unit area will decrease by 3%~3.5% over the previous year. The decline is 0.5 percentage points higher than the estimated value in July, which is mainly affected by weather factors.

The report points out that in August, China's cotton growth index (CCGI) was 94, compared with the average value of 99 in the first 7 years, and the total number of bolls in the country was 11.1 / plant.

According to the previously announced cotton planting area comparison, cotton production reduction has basically been confirmed this year, and there are still many phenomena in many places, which exacerbated the tight supply pattern of cotton.

In order to meet the production needs of textile enterprises, the state issued a total of 3 million 600 thousand tons of cotton quotas and 1 million 700 thousand tons of throwing and storing cotton in 2009/10.

This year, cotton production is more serious than last year, and market demand has been increasing in the economic recovery.

According to the report, in August 12th, the US Department of Agriculture released the latest monthly report on global cotton supply and demand. Due to the expansion of production demand gap, the global initial and final inventory in 2010/11 has been reduced.

The initial inventory dropped by 743 thousand tons.

In addition, the report also increased the output of India, the United States, Turkey and Australia, and the world's cotton production reached 25 million 442 thousand tons. On the basis of the increase in demand from mainland China and Turkey, the report increased global cotton consumption by 2.7% to 26 million 317 thousand tons.

According to output consumption, the global cotton gap was 875 thousand tons in 2010/11.

The report also reduced global end stocks to 9 million 931 thousand tons, and inventories consumption ratio fell to 38%, the lowest since 1994/1995.

According to the reporter, the domestic authorities have repeatedly said that cotton prices and domestic cotton quotas should be put in place to stabilize domestic cotton prices.

In September 25th, the reserve cotton once again sold 20063 tons of reserve cotton, which involved 12 warehouses in 7 provinces. This is the thirty-third time that the central reserve cotton has sold cotton reserves since August 10th.

The 20063 tons of cotton stored on the same day, which lasted nearly 17.5 hours from 2 p.m. to 7:20 the next day, averaged 4.03, 21 lower than 0.25. The average length was 28.30, 0.08 lower than that of 21 days, and the weighted paction price was 23890 yuan / ton, which was more than 21 days.

Statistics show that on August 10th ~9, 21, the total amount of cotton reserves sold in the Central Cotton store was 520 thousand and 116 tons, accounting for 86.69% of the 600 thousand tons of the national cotton reserves. If the 2 million tons sold on the 25 th of this month were counted, the total reserve cotton sold in the reserve cotton plant had exceeded 540 thousand tons.

The decline in cotton turnover in China has also pushed domestic cotton prices to a large extent.

The cotton warehouse Association of China Cotton Association has counted 114 warehousing units. As at the end of August 2010, the total turnover of commodity cotton turnover was 166 thousand tons (151 thousand tons in the mainland and 15 thousand tons in Xinjiang), with a reduction of 230 thousand tons per annulus. Based on this, it was estimated that the total turnover of commodity cotton turnover in China was about 205 thousand tons, down 251 thousand tons compared with July.

That month, 21 pit stations in Xinjiang pported 52 thousand tons of cotton to the mainland by rail, a decrease of 164 thousand tons compared with June.

Judging from the distribution of stocks around the same month, the proportion of stocks in Shandong and Jiangsu is still the largest, close to half of the total stock in the country, but it has declined since last month. The proportion of stocks in Shandong is 32%, down 4 percentage points from the previous month, and Jiangsu's inventory accounts for 16%, down 9 percentage points from last month.

In addition, the decline in Henan is also larger, while the proportion of stocks in Anhui, Hebei and Hubei has increased significantly.

At present, the export of Xinjiang commodity cotton has basically come to an end. As of the end of August 2010, the 21 warehouses in Xinjiang area have been converted into 15 thousand tons of commodity cotton week (middle), with a reduction of 180 thousand tons.

That month, the above pfer stations pported 52 thousand tons of cotton to the mainland by rail, a decrease of 164 thousand tons in comparison with the daily average shipment volume of about 5467 tons less than in June.

At the end of the month, Xinjiang cotton has a capacity of about 38 thousand tons.

There are not many stocks left in Xinjiang this month, and Sinop is basically over.

According to USDA estimated data, the global demand for cotton is still larger than cotton production in 2011.

International cotton prices have also hit a 10 year high since 2010, and the recent rise in international cotton prices.

Although the US cotton trend has slowed down considerably in recent years, cotton prices will remain relatively good in the short term, despite the reduction in the excellent and good rate of the US cotton and the improvement of domestic weather.

According to the CFTC classification report, the non-commercial organizations represented by the fund continue to increase their positions. Market funds are still optimistic about the trend of cotton futures in the later stage.

The US Department of agriculture weekly showed that as of September 9th, the US signed net exports of 129319 tons of Upland Cotton in the 2010/11 year, 4.8 times higher than the previous week; shipment of 20616 tons, a decrease of 50% compared with the previous week, net signing of 4082 tons of Pima cotton, an increase of 19% over the previous week, and a net signing of the export of 58060 tons of land cotton in 2011/12.

India's new flower export registration will be postponed to October 1st, and India's export policy is still wavering. It is mainly concerned about the weather factors in the future.

Brazil is affected by drought and its output is expected to decline. The government has approved the import of 250 thousand tons of cotton tax free.

Textile recovery growth cotton demand continues to rise {page_break}

In 2010, after the baptism of the financial crisis, the economic situation at home and abroad has been further improved, and the export of textile and clothing has also shown a rapid growth momentum.

According to the latest statistics of the Statistics Center of China Textile Industry Association, in July 2010, the production volume of Enterprises above designated size was 575 thousand and 990 meters, and the total output of cloth in 1~7 months reached 35 billion 433 million 810 thousand meters, an increase of 16.73% over the same period last year.

The output of cotton cloth was 3 billion 408 million 200 thousand meters in July, and the cumulative output in 1~7 months reached 20 billion 974 million 320 thousand meters, up 20.92% from the same period last year.

In addition, the production of dyed fabrics (including DENIM) in the first 7 months of this year has also maintained steady growth, with a total output of 1 billion 476 million 410 thousand meters, an increase of 21.10% over the same period last year.

Before July, the yarn production of Enterprises above Designated Size reached 15001135 tons, an increase of 16.19% over the same period last year, of which cotton yarn output reached 11451596 tons, an increase of 14.92% over the same period last year.

The increase in cotton yarn and cotton output needs more cotton, and the recovery of textile exports also supports cotton demand and cotton demand is rising.

Sun Huaibin, a spokesman for the China Textile Industry Association, said at the forum that the recent appreciation of the renminbi has had a negative impact on the downstream export oriented textile and garment industry. The industry expects that the export growth rate of China's textile and garment industry will slow down in the four quarter of 2010, leading to the development trend of the former.

However, the revival trend of the textile and garment industry will not change because of the vigorous consumption demand in China.

But the rising price of raw materials and labor has made the cost growth of textile and garment enterprises far exceed the income growth rate, especially the profit margins of small and medium-sized enterprises are shrinking.

If the RMB continues to appreciate, more and more enterprises will not be able to get out of trouble.

According to the Statistics Bureau, in 1~8 months, the retail sales of clothing, shoes and hats and needle textiles in China's Enterprises above Designated Size amounted to 354 billion yuan, an increase of 23.7% over the same period last year. In August, the retail sales of clothing, shoes and hats and needle textiles in China's Enterprises above Designated Size amounted to 39 billion 900 million yuan, an increase of 22.1% over the same period last year.

The year-on-year growth rate was faster than the total retail sales of consumer goods in China.

At present, the high cotton price has been rapidly pmitted to the whole industry chain, and cotton related substitute viscose fiber and polyester market have been raised at the same time. At the same time, the market is also reluctant to sell.

Domestic clothing industry also generally raised the wholesale price of autumn winter clothing.

Sun Huaibin believes that the whole industry chain is fairly reasonable at the moment, but whether consumers who pay the bill eventually have a continuous purchasing power will be an important factor in determining the trend of cotton price in the later stage.

Hedging awareness raising, reducing speculation is a long way to go

According to Zhang Jing, assistant general manager of Zhengshang general office, Zheng Shang has guided and encouraged more and more cotton enterprises to use futures trading mechanism to avoid market risks, enhance their competitiveness and achieve sound operation by doing fine and meticulous listed varieties.

As of the end of June 2010, the number of enterprises involved in futures trading was more than 3300, which was 20 times higher than that of 160 cotton futures. It accounted for more than 20% of the total number of cotton enterprises in China.

Li Zhihang, general manager of Ningbo VICCO Jiaxing Material Co., Ltd., which has long been using futures market to hedge risks, reminds people at the forum that "for those involved in cotton futures business, we should pay special attention to it. We must not enter the market with hedging purposes, but do speculation.

The company should have strict internal control mechanism, formulate detailed execution plan at the beginning of the paction, implement strict process management in the paction process, and carry out the risk effect evaluation after the paction, providing data support for the next paction.

At present, more and more cotton enterprises have realized the importance of futures market.

Zhang Jing said that as of the end of June this year, the number of trading companies involved in futures trading of Zhengzhou merchants has accounted for more than 20% of the total number of cotton related enterprises in China, but it is far from enough.

"From the current market situation, the position is still insufficient compared with the huge volume of pactions, showing that the market speculation is bigger, and the involvement of cotton enterprises needs to be further increased."

Zhang Jing said that Zheng will continue to improve investor structure, enhance the ability and effectiveness of cotton futures companies to use futures market, and improve the ability of futures market to serve the real economy.

At this forum, the reporter learned from Wanda Futures Company Urumqi branch that many cotton companies used the hedging function of futures market in the paction of Xinjiang cotton, effectively avoiding the risk of large and large cotton prices in the spot market, not only avoiding losses, but also obtaining reasonable profit margins.

Li Hui, general manager of Urumqi Sales Department of Wanda Futures Company, told reporters that Xinjiang has provided the largest and best quality cotton source base for the cotton futures business in Zhengzhou, which has advanced, complete sets of local and regiment cotton production, processing, scientific research and management system.

Wanda Futures Company always focuses on hedging entity management. In 2009 and 2010, it focused on promoting large and medium-sized textile enterprises to participate in cotton futures business, and actively integrated the business process of cotton futures trading, delivery and cash pfer. It strives to safeguard the national market regulation policy of cotton industry, and serves the vast number of cotton farmers, ginning enterprises and textile enterprises, thus promoting the healthy development of the cotton futures market in Zhengzhou city.

In recent years, Wanda Futures Company has made full use of the functions of Zheng Shang's cotton futures market hedging, basis trading, intertemporal arbitrage, cross market arbitrage and cash pfer. It has contacted Xinjiang local cotton enterprises, corps of cotton growers, cotton growers, cotton professional cooperatives, and downstream textile enterprises to enter the futures market, forming a complete system of Xinjiang's high-quality cotton resources producing, supply, storage, marketing, storage and pportation combined with the textile and consumer market.

According to the reporter, although the present number of cotton textile enterprises involved in the futures market is insufficient, most of them only refer to the futures price to draw up the purchase price of raw materials, but more and more textile enterprises have gradually realized the hedging role of futures, and began to try and participate in the futures market.

In the forum, the head of the textile enterprise has made a statement about the advantages of futures for the enterprise to avoid risk. It has two main aspects.

On the one hand, cotton spot storage needs to occupy a large amount of capital, slow turnover speed and low utilization rate of funds, and the import cotton quota and cotton storage mechanism lag behind; on the other hand, cash spot trade of cotton must pay cash in full, and occupy 2~5 months of loan funds and interest, while the cotton futures market implements a 10% margin system and 1 year long range price discovery rules. Only a small amount of funds can be used by enterprises to carry out the cotton futures trading in the relatively low price stage, and the operation of savings or futures is combined to save 50% to 80% of the procurement funds.

In order to better play the role of futures market hedging and promote the healthy development of the futures market, Zhang Jing, an assistant to general manager of the general manager of Zhengzhou, must guide the cotton companies to avoid speculation.

Zhang Jingming did say: "Zhengshang is an exchange mainly based on agricultural products, and staple agricultural products such as grain, cotton, oil and sugar that are related to the national economy and people's livelihood are listed and traded in Zhengshang.

We must promote the function of the futures market and obey the overall development of the national economy, and serve the entire industrial chain including cotton and cotton spinning enterprises.

Zheng Shang will adhere to the principle of "three principles", strengthen the front-line regulation, guard against market risks, organize pactions safely, build a good market order, make sure that the futures market runs smoothly and healthfully, and promote the healthy development of the real economy at a higher level with quality service.

This forum on this important historical node witnessed a landmark pcendence and strengthened the concept of "market is king".