It Is Not Easy For Cotton To Attract Funds Again.

Since cotton started a wave last year,

Domestic futures rose less vigorously. In February 1st, after breaking through the previous high of 33600 yuan / ton, the trend entered a concussion. Although the high point of 34870 yuan / ton was reached in February 17th, it continued to decline for two consecutive days, and the rally was weak.

Figure 1:ICE cotton trend Tutu 2: Cotton 1109 contract chart

Source: Minsheng futures R & D department source: Minsheng futures R & D department.

Fundamental analysis

Commodity futures market is being integrated under policy regulation

The 2011 policy can be summed up as "wide fiscal and tight currency", and the inflation pressure in 2010 is highlighted by the government.

US dollar depreciation

Since the reform in June 2010, the RMB has appreciated sharply against the US dollar. By the end of February 14th, the central parity of RMB against the US dollar was 6.5985 yuan, and the increase in the half year period was 3%.

As of February 18th, the central parity of RMB against the US dollar was 6.5781, setting a record high since the reform.

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With the appreciation of the renminbi, the US dollar is in constant devaluation. From the trend of US dollar index since June 2010, we can see that the US dollar index has dropped to a minimum of 75.631 from 88.708. In the short term, from the technical side, the US dollar index average is in short order, the 5 and 10 day average crosses, the MACD index is shrinking, the KDJ index is decreasing and the short term bearish.

Figure 3: US dollar index chart

The reduction in import resources with limited import resources is the main reason for the short supply and demand in the near future.

This year's supply and demand tension has reached a consensus. USDA1's monthly supply and demand report shows that China's cotton production in this year is 6 million 532 thousand tons, while demand is 10 million 233 thousand tons, the gap between supply and demand is 3 million 701 thousand tons, inventory has dropped to a historical low, the gap is mainly dependent on imports, and this year's import volume is 3 million 266 thousand tons.

From the analysis of the major importing countries in 2010, the main source of imports in 2010 was mainly in a few countries, including the United States, India, Uzbek, Australia and Brazil. Among them, the United States accounted for 35.5%, India was 30.6%, Uzbek was 12.2%, Australia accounted for 7.2%, and Brazil accounted for 3.1%.

At present, the import quota of cotton in 2011 includes 894 thousand tons import tariff and 1 million 790 thousand tons sliding tariff quota, an increase of 700 thousand tons over the same period last year.

At present, the export resources of several major countries are limited, affecting China's imports. According to customs statistics, in January 2011, 392 thousand tons of cotton imported from China decreased by 69 thousand tons compared with December, a decrease of 15.1%.

As of February 10th, the US cotton exports reached 97%, of which China signed 1 million 75 thousand tons, while the latter could export less than 100 thousand tons.

The Ministry of textiles of India has announced that the quantity of cotton exports should not exceed 5 million 500 thousand bales before February 28th, but it is expected that only 3 million 500 thousand packages of cotton will be exported to India before the deadline. It is impossible to achieve the export target of 5 million 500 thousand bales of cotton.

Fund trend shows that more cotton is still in the late stage.

From the perspective of cotton holding positions, since the start of August 2010, the total position has increased significantly, and the total positions have exceeded 200 thousand. The net position of the fund has changed significantly: the net increase is obvious, and the net head rate is increasing continuously. Through the chart below, we can see that the net position of the fund has increased earlier than February 15th. With the domestic futures market trading, the net bull rate increased from 64.8% to 70.5%.

Figure 4:CFTC position of fund positions

Source: Minsheng futures R & D department

The change of cotton turnover and position in domestic phase is mainly reflected in the following aspects: capital advance layout, far month contract 12011201, the volume of contracts has increased significantly since February 9th, after February 1st, the turnover was only 35574 hands, and increased to 92376 hands in February 9th, and then maintained at 200 thousand hands smoothly. The obvious increase in positions appeared in February 9th, and the current position was basically maintained at 100 thousand hands.

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Investment opportunity analysis

Now the basis is widening the current interest arbitrage opportunities.

As can be seen from the above chart, after adjusting for November 2010, the current base has been widening, and the continuous rise has reached 5010 in February 1st. After the rise of the US cotton, the reduction of domestic imports and the adverse weather, the cotton futures continued to rise, but in the spot market, due to the downturn in demand, the spot price rose slowly, so the base strength continued to strengthen, but it was still in the arbitrage interval.

As the cotton 1109 contract has been larger than the spot market in recent years, there is an excellent opportunity to arbitrage for enterprises or traders with spot resources.

In February 18th, the average price of 328 cotton in the corresponding delivery level was 30251 yuan from spot to factory, while the futures price of 1109 contracts was 33455 yuan, with a base of up to 3204 yuan.

If an enterprise uses its own funds to buy Cotton in the spot market, and at the same time, it throws an empty list on the futures 1109 contract, when the spread is reasonable, hedge or directly choose maturity delivery, it is a typical risk free arbitrage opportunity.

Figure 5: cotton futures cash map (spot futures)

Source: Minsheng futures R & D department

Analysis of intertemporal arbitrage opportunities

With the gradual intervention of funds into the far month contract, the price difference between the 1109 main contract and the 1201 contract began to open. The difference between the two sides has been raised from 0 to 6000, and has been maintained at 4000-5000 in the near future. Arbitrage opportunities have emerged. Investors can take the near sell long term arbitrage paction and wait until the price difference is returned to a reasonable interval.

Figure 6:1109 price difference chart between contract and 1201 contract

Source: Minsheng futures R & D department

Outlook and technical analysis of the market outlook

US cotton has risen sharply due to the shortage of export resources, while domestic cotton has been weaker than before. Despite the fact that the 1109 cotton futures contract has broken through the previous high point, it has been rather weak in the previous rush, and the sales situation of the textile enterprises has continued to improve after the last year, and the demand for cotton has been warmer. It only supports the rise of cotton from the supply and demand side. However, due to the existence of regulatory factors, the uplink resistance exists. In the later period, the author thinks that the medium term is still going up, and in the short term, the average length of the technical plane is in line, the 5 day moving average and the 10 day average crossing, the MACD index 0 axes, the KDJ index is diverging downward, and the short-term adjustment pressure is bigger.

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