How Much Cotton China Is Willing To Import Determines The Fate Of American Cotton Exports

New York this week Cotton season The December contract rose 14 points to close at 76.94 cents.

After falling to a low of 74.72 cents last Friday, the market climbed all the way back to 77 cents. However, due to the shrinking trading volume, the empty volume has hardly changed since last Thursday between 9000 and 14000 hands. This tells us that the current market energy is insufficient, and the price rise in the last four trading days may be due to the lack of selling, rather than the strong buying in the market. Potential sellers are unwilling to bear the market, because Hurricane Isaac entered the delta region, and at the same time, soybeans rose to an all-time high.

On Tuesday night, Hurricane Isaac made landfall as a Category I storm, bringing heavy rain to the southern part of the Delta. From the perspective of cotton, Louisiana may be the state most affected by the storm, although we expect that Mississippi and Arkansas will suffer very little loss. The overall impact of this storm on American cotton should be minimal, because Louisiana only produces about 400000 bales of cotton, or only 2% of the total American production. However, the hurricane reminded people that cotton is still vulnerable to bad weather. Therefore, we expect that the selling of spot trade will not increase before large-scale cotton picking.

As textile mills do not seem to be eager to increase the purchase quantity, they only buy the cotton they need immediately, so the transaction progress is relatively slow. In the week ended August 23, the export sales of American upland cotton and Pima cotton in the two market years were only 98900 standard export packages. The total volume of export entrustment in the whole year is now 4.7 million statistical packages, of which only 500000 packages have been exported so far. Compared with last year, the sales volume lagged behind 2.3 million packages. As we have pointed out before, the fate of US exports depends on how much cotton China is willing to import this year, although China has a huge inventory.

So far, China has about 1.7 million statistical packages, slightly lower than last year's 1.9 million package inventory. However, China has increased in the rest of this year Import quota The chances are small. China seems willing to auction 300000 tons of strategic reserves at a price of 18500 yuan/ton, or about 133 cents/pound. This part of cotton is obviously Xinjiang cotton in 2011/12, which was purchased by the National Reserve Company last year at a support price of 19800 yuan/ton. Although the number of sales will not exceed 1.38 million statistical packets, this is obviously different from the past, because this is the first time that China has sold reserve cotton at a loss price.

We believe that China's cotton policy will be the most important price factor this year. Now everyone is still wondering what China will do. China is facing a huge problem, because not only does China have more than 4 million tons of reserve cotton stocks (including domestic and imported cotton), but China continues to purchase cotton at the support price this year. The purchase price this year is 20400 yuan/ton, far higher than the domestic and international market prices.

Although China's support price is very beneficial to farmers, it is not conducive to textile companies doing export. Last year, China solved this problem by allowing the import of cheap cotton and yarn. However, this method has obvious limitations. China's decision to release reserve stocks at a loss price may indicate that the policy of this year may change, which may be detrimental to international prices. China's output gap this year may be only 8 million bales. If this gap is at least partially filled from reserve stocks rather than imports, then there will be a lot of cotton in the world looking for husbands, especially American cotton.

Although we see short-term negative fundamentals, the market will continue to receive positive support from strong grain and soybean prices and speculators' buying. The fund managers continued to be optimistic about the commodity market and increased their long positions in futures and options, which increased the futures and options positions to the highest level in 15 months. Although since the beginning of June, the GSCI spot index (24 commodity indexes) has risen by more than 20%, partly because of drought and partly because of the loose monetary policy of the Federal Reserve. Let fund managers have confidence to enter the long side of the asset market. However, as the economy still does not have an appropriate growth engine, it will rely on further stimulus to maintain economic growth. Dealers will therefore concentrate on listening to what Bernanke said at the central bank governors' meeting in Wyoming. If the Federal Reserve fails to meet the high expectations of the market in continuing to print money, there will be some profit taking in the entire commodity market.

So where are we going? The market is consolidating horizontally, waiting for something to provide energy for the market. As the spot market was still tight before the supply of new cotton entered the market, so far, there was no pressure on crop growth, and the impact of external markets supported cotton prices. However, we still believe that once the harvest pressure starts to appear, the market will tend to decline. Since the price difference between December and July was only 2 cents of holding fee, and China's import enthusiasm was weakened compared with last year, however, in the near future, there should be a lot of cotton to find a foothold. Only when the new cotton is reduced to a controllable level, the market begins to discuss New cotton When planting problems occur, we may finally see a lasting price rebound.