Cotton Planting Area Greatly Reduces Market Potential

According to historical statistics, the mean monthly average spreads between May and January contracts between 2005 and 2011 were 361.72, the highest monthly average spreads in September 2008 were 531.75, and the lowest monthly average spreads appeared at 6, with an extreme value of 177.11.

At present, the difference between the CF1305 contract and the CF1301 contract is 35 points, far below the historical level.

In addition, in the recent 7 years of historical data, the average price difference in August for 6 years is higher than that in July, that is, the expansion of the price difference between May and January contracts is a big probability event between 7 and August.

The above two points provide a basis for us to sell the CF1301 contract and reverse arbitrage of CF1305 contracts in a statistical sense.

Reasons for strong contract in recent months

As we all know, according to the current statement,

The next year's storage and purchase plan is 20400 yuan / ton unlimited storage, the storage time is from September this year to the end of next year.

If the final purchase and storage plan is consistent with the prevailing market expectations, only CF1301 will be in the period of protection.

CF1209 contract delivery period is also in the storage period, but due to the sporadic listing of new shares in September, it is difficult to hand over to the national reserve, and the CF1305 contract has already been in the period of storage and protection.

Cotton downstream textile was originally weak, the market is not optimistic about the long-term trend, once the end of the purchase and storage, then the market is worrying.

This is the reason why the price of the CF1303 contract is the highest at present, and the reason why CF1301 and CF1305 are on the CF1303 discount.

How far is the macro policy?

Continuing to affect the market, the pace of economic recovery in the US is getting slower and slower. China's sluggish GDP data also show that the economic outlook is not optimistic.

In the absence of growth in the world's major economies, Europe and China have already announced interest rates cuts to stimulate economic recovery. South Korea has also decided to cut interest rates, and the Fed's easing policy is also expected to grow further.

The world's main economies are simultaneously pumping water into the capital market to stimulate economic recovery.

To a certain extent, this is more advantageous to far month contracts.

Once the macro economy stabilise, the downstream demand will improve, and the contracts in the far months will have a longer time to get the proceeds.

Reduced planting area has become a potential advantage.

"Bull market sees supply, bear market sees demand" is the general rule of commodity market.

The main factor in the current cotton market is the downturn in downstream demand, and the 2012/2013 year.

The potential benefits of a sharp reduction in the area have been ignored by the market.

In 2012, the planting area in China was about 71 million 490 thousand mu, which was reduced by 7 million 260 thousand mu over the 2011 year, a decrease of 9.2%, and the expected output of 6 million 600 thousand tons. The actual planting area of the United States in 2012 years was about 12 million 635 thousand acres, decreasing by 14% compared to the same period last year. Drought in many parts of India was not conducive to the new flower planting, and the new flower planting schedule decreased by 14.6% over the same period.

The reduction of the global planting area is a foregone conclusion, but it is not reflected by the market.

Once the market focus shifts to supply, the potential benefits of planting area will benefit CF1305 contracts far away.

The reverse arbitrage operation is based on the current price difference as the 45 entry point. Because the current price differentials are in the trend of enlargement, the possibility of the price differential continues to shrink is very small, and the potential income is relatively large.

According to the August average price difference of 406 points, the possible return is 360 points, even if the price difference does not return to the average level, the possibility of continuing to enlarge is also very large.