Review Of Cotton Market In 2010 And Prospect For 2011

Part one: 2010

For the cotton price in 2010, we can see three distinct fluctuations in the technical figures.

This also corresponds to the three stages of cotton trend: the first stage is mild uplink; the second stage is to create legends; the third stage, the amendment is attributed to reason.

The second part: 2011 outlook.

Supply and demand pattern

We use the US Department of agriculture (USAD) November 2010 monthly.

The global pattern of supply and demand: production of 25 million 93 thousand tons and consumption of 25 million 435 thousand tons, because high cotton prices inhibit global consumption by 3%.

However, the supply gap is still up to 342 thousand tons, so that the final inventory will continue to decline by 5%, to 9 million 188 thousand tons.

The global inventory consumption ratio in 2009/2010 and 2010/2011 decreased to 37% and 36% respectively, since the year of 1993/1994.

China: the US Department of agriculture predicts that China's cotton production will be 6 million 522 thousand tons in 2010/2011, down 9.4% annually, import 3 million 266 thousand tons, and increase by 37.6% annually.

The end of term inventory was reduced by 442 thousand tons to 2 million 878 thousand tons.

From the report of the United States Department of agriculture, China's cotton supply and demand gap in 2010/2011 is 3 million 728 thousand tons, and China's demand for imported cotton will have a significant impact on international cotton prices.

Universality and independence

We understand the price trend of cotton in 2010 aspects from two aspects: commonness and independence.

1. commonality: commonality is the main factor that affects the whole commodity market. There are three main factors: first, the global quantitative easing policy; the appearance is the depreciation of the US dollar; two, the domestic macro policy control; three, the effect of the overall market formation.

US dollar: after June, the trend of commodity prices obviously runs counter to the trend of US dollar index.

The US dollar index continued to decline after touching 88.708 in June 7th, that is, the US dollar depreciated against other major currencies.

Correspondingly, June 8th has also become the starting point for the rise of most commodities.

Regulation: when the US dollar rebounded upward in November 5th, it also increased the deposit reserve ratio by 0.5% within one month in November 10th, and the domestic macroeconomic regulation and control focused on strengthening.

Effect: since 2010, the price rise of domestic agricultural products has continuously become the focus of news media.

From the "beans you play" to "garlic you ruthless" and other individual phenomena, spread to ginger, spices, Chinese herbal medicines and other collective phenomena; from the smaller agricultural products to the medium output of agricultural products; from the highly related agricultural products to the international market with independent pricing ability of agricultural products spread, it should be said that the rise in agricultural products has become the consensus of people.

From June 8th to November 5th, the US cotton index increased by 100%, while the depreciation of the US dollar contributed 33%.

Such a high degree of coherence makes it necessary to first understand it as an integral factor in the trend of commodity prices.

The author believes that in the short term, the ability of state regulation will prevail, but the non market formation of the regulation means will be dominant and it is difficult to alleviate the actual contradiction from the demand side.

The problem of liquidity overflow is still a major factor of price rise.

The current trend of cotton prices is to respond to and digest the effects of national regulation and control policies. This process is expected to be delayed until the end of 2010. Cotton prices at this stage are mainly oscillating at high levels, and respond to the demand and supply of cotton at home and abroad in real time.

2. independence: the discussion of independence is the discussion of the fundamentals of cotton.

From the perspective of cotton price formation mechanism, the author thinks that many factors have led to the rise of cotton prices, that is, domestic cotton production has weakened; textile exports have been rising; cotton production in the United States has not been able to meet market supply; domestic governments have been out of control of their storage and storage policies; and the fund has sought after the international cotton price.

Globally, only 2 million 800 thousand cotton production in India has been increased, but it is still insufficient to make up for the gap between supply and demand.

Guidance of cotton prices

Cotton becomes the vane of the whole market and plays a guiding role.

This is our new understanding of cotton in 2010.

For example, the overall collapse in November 12th.

At the end of 2010, the commodity price rose fiercely and the price level continued to rise. In order to curb inflation, the state firmly contractis liquidity. Since October, it has continuously used macro-control measures such as raising deposit reserves and raising interest rates, and announced in November 11th that the reserve requirement ratio will be raised again by 0.5%, which is the second increase in the deposit reserve ratio in 10 days.

Under the concentrated restraint of policy power, the commodity market has plunged overall, and most commodities have been closed down.

The plunge in cotton prices was very clear. In November 10th, it experienced a high middle Yin adjustment and took the lead in November 11th, which was two days ahead of the overall market.

For cotton guidance, we have the following understanding: first, cotton is the most powerful variety in 2009/2010, and its influence on market is magnified. Once the strongest person stops or turns, its influence on the market can not be ignored. This is consistent with some characteristics of stock market operation. Secondly, on the guidance of rhythm, cotton price trend is ahead of the whole market, and its sensitivity to any wind and grass is higher than the market average level. Thirdly, in terms of the price system of cotton price, there is also an indication of the adjustment of cotton price ahead of time.

Discussion on Cotton Futures Spread

From the perspective of exchange, the difference between cotton futures and spot prices is basically in the range of -800 - 2200.

With the increase of the absolute spread of cotton, the original price difference interval has also changed dramatically. In our data statistics, the new spread interval is in the range of -2800 - 4000.

In proportion, the two intervals are actually the same, that is, the deviation from the spot is -8% - 13%.

But as we mentioned, the observation of the spread range is still an important guide for participating in cotton futures investment.

Moreover, the upper and lower limits of price differentials are also coincided with the trend of price change.

This point has very high practical guiding significance, that is to say, we should continue to maintain a high degree of concern about the current price difference in cotton prices and fully understand its importance.

Technical analysis of US cotton price trend

From the current trend of US cotton prices, the monthly chart is clear, and spot price has exceeded the original 30 year fluctuation range in September 2010.

From the technical perspective of the monthly line, the fluctuation in the first 30 years constituted a 36 to 96 box, and its ascending target was 96+ (96-36) =156 cents.

The November 2010 high of 152.36 is almost the same.

That is to say, at present, the US cotton price has been running in a new fluctuation range of 96 - 156, corresponding to the low point of China's cotton at 19200 yuan / ton.

US cotton recent high oscillation, its intrinsic meaning is to correct the excessive part of the 72 cent rise.

The author believes that in the next long time, the United States and cotton will be stable in the new fluctuation range.

This state can be found in Lun copper, which broke through the original high point of 3300 US dollars in July 2005, and continued to run in the new range, only to be temporarily hit by the financial crisis in 2008.

The author thinks that the real breakthrough line corresponds to September 2010, because the breakthrough of Changyang line is accompanied by the enlargement of volume and position. The possibility of establishing the validity of the line is great, and its supporting role is also huge. The supporting interval is between 20000 and 22000.

The third part: outlook and operation strategy.

To sum up, I believe that the trend of cotton prices in 2011 will be dominated by strong oscillation.

Quantifying, from December 2010 to April 2011, the fluctuation range of cotton is limited to 23500 - 28800, and the change will increase after April 2011.

From the policy point of view, the period of December 2010 to March 2011 is still in the time period when the policy control forces are exerting, and the non market factors are relatively large. This stage will also be the time to suppress the financial power of pursuing inflation.

In addition, we need to pay attention to an important basic risk element, that is, the increase in the area of cotton planting is in a state of indefinite uncertainty, which may change the global supply relationship next year, and this factor will be clear from 5 to June 2011.

In short, there are two leading factors in cotton price trend in 2011, one is national policy, the other is the combination of fundamentals and inflation force in the new year.