China'S Cotton Purchasing And Storage Policy Is Expected To Make Major Adjustments.

As the world's largest cotton producer and consumer country, China's three year cotton open storage policy is expected to usher in a major adjustment.

although Cotton market There is a lot of debates about the practice of collecting or storing direct subsidies, but a fundamental problem is: how to adjust the position of the government in the cotton industry and give play to the role of safeguarding the market equity, instead of continuing to store and store the market in the capacity of heaven, and act as the "biggest producer of cotton market".

The Chinese government is considering adjusting the current cotton open storage and storage policy. Research on cotton farmers and cotton enterprises has also started. The new policy will be implemented next year.

A director of the China Cotton Association said to Reuters: "because this year's national cotton purchase and storage program has been announced, there is little chance of further changes. If there are policy changes, it will be targeted at the next year."

Although the government has not formally announced any decision to adjust the purchase and storage policy, the call for reform and purchase and storage system in the cotton industry is getting higher and higher. The main idea is to replace the current open purchase and storage policy with "direct subsidy". From the positive response of many government officials and industry associations, the possibility of major adjustment of cotton purchase and storage policy is increasing.

At the China International Cotton Conference held earlier this month, Liu Xiaonan, deputy director of the national development and Reform Commission, pointed out that "there is room for improvement and improvement in the current policy system of cotton. The relevant departments of the State Council are actively exploring these things."

Zhou Shengtao, President of China Cotton Association, also said that while affirming the positive role of cotton policy in stabilizing cotton market, the adverse effects of these measures on the industrial chain should not be ignored. We should study how to improve the mechanism and design a long-term and forward-looking system.

China began to implement a fixed price open storage system for domestic cotton in 2011, and the storage price in 2013 was 20400 yuan per ton. At the same time, in order to ensure the needs of cotton enterprises, the government continued to carry out the reserve cotton business from the beginning of the year.

However, the policy of purchasing and storing three years of continuous use has also produced various distortions and drawbacks in stabilizing the cotton price. Among them, the price gap between domestic and foreign markets is too large, the downstream industry chain is damaged, and the closed storage system is out of touch with the market. Market analysts pointed out that behind these problems are market distortions caused by excessive administrative intervention instead of economic laws.

"Now that the state has mastered most of the cotton resources, both buyers and sellers should be done by the market, which is very unusual." The chief cotton analyst in the middle of Shanghai sees thunder, told Reuters.

This abnormal administrative intervention results in excessive inventory, but also causes the embarrassment of no cotton and delivery in the futures market. The disconnection between the purchase price and the market price and the limitation of futures delivery channels also bring risks to the financial market.

In the US Department of agriculture (USDA) report, at the end of this year, China's cotton inventory reached 10 million 890 thousand tons, which not only exceeded the total consumption in China, but also accounted for nearly 60% of the total inventory in the world.

In the 2013 cotton temporary storage and purchase plan formulated by various departments such as the national development and Reform Commission, "stabilizing cotton production, operators and cotton enterprises' market expectations, protecting the interests of cotton farmers and ensuring market supply" is written in Article 1. However, analysts pointed out that in the existing framework of collection and storage, the above goals are hard to balance.

Analysts pointed out that the current purchase and storage policy and the establishment of the purchase and storage price were obviously inclined to support the upstream of the industrial chain, reflecting the country's intention to stabilize cotton production. But what was overwhelming was that the cotton growers' willingness to grow was not much higher than that of the external cotton.

According to the latest statistics of China Cotton Association, in 2013, China's cotton planting area is still in a downward trend, and it has dropped to its lowest level in nearly ten years, and has fallen below 70 million mu for the first time.

"The current purchase and storage price plays a fundamental role in protecting farmers' protection, but it is not enough to mobilize the enthusiasm of farmers to increase their production area." Gao Fang, Secretary General of China Cotton Association, said.

Analysts said that due to the rising cost of picking cotton and the comparative advantage of other crops, the current cotton purchase and storage price is still not very attractive to farmers, especially in Xinjiang.

"The government's intention is not to manipulate the market. The management department has realized the drawbacks brought by the purchase and storage, but hopes to keep the cotton industry as low as that of soybeans. It hopes to protect some cotton farmers from continuing to grow." Founder Cai Pingxia said.

In fact, while persisting in the policy of purchasing and storing, the management departments have begun to consider more the actual needs of downstream enterprises, such as increasing the delivery of high grade cotton in the storage, and providing some import quotas for enterprises participating in the auction of cotton reserves.

"Cotton planting and downstream cotton enterprises have different departments in charge. Now the way to deal with this problem is to emphasize that when upstream, the policy balance is tilted to cotton farmers. Spin When the industry is in demand, the policy is tilted to the other end, and it is difficult to balance a bowl of water. The middle of Shanghai saw thunder.

He also said that the cotton control policy in the future is to use the current storage or to replace the subsidy, which needs to be considered at the operational level. Both of them have advantages and disadvantages, but the important thing is that the management of cotton city must focus on ensuring fair market and honest operation. "Some things that cannot be done by administrative means should be given to the market more."

Market participants pointed out that even with the direct subsidy policy, there are still many thorny problems to be solved, such as how to accurately check the planting area, avoid abuse of subsidies, and how to deal with millions of tons of cotton reserves in the hands of the State Reserve.

While the storage and storage system has raised the national cotton stocks to a historical high level, the other side of the domestic market is facing a serious "insufficient food" dilemma.

Due to the high cotton purchase and storage price in the current year compared with cotton spot and futures prices, most of the cotton harvested before that was imported into the reserve, resulting in limited circulation of cotton, especially high-grade cotton, on the spot market. On the other hand, the cotton and cotton imported by the state can not enter the futures market delivery, resulting in the domestic futures market of cotton warehouse receipts is directly strangled, and the market is embarrassed without cotton.

In fact, the 1305 futures contract of Zhengzhou commodity exchange, which has been delisted by the impact of the shortage of warehouse receipts, has deducted a steadily advancing market before and after the delivery month. It rose nearly 7% in just two weeks, reaching a maximum of 21855 yuan per ton, leaving the reserve price of 20400 yuan far behind.

In order to prevent the spread of similar risks to the following contracts, Zheng has repeatedly raised the margin of the 1309 cotton contract. As of June 6th, the exchange margin of the contract has been raised to 18%, which is very rare for a contract which is sometimes off the day of delivery and does not show extreme trend. It also highlights the speculation of the exchange on cotton futures under the background of cotton warehouse receipts. Ti.

"Futures warehouse receipts are still hard to increase. Theoretically, there is still a possibility of closing the contract in September. Whether or not it will happen depends on whether the funds are concerned. cotton The problem of warehouse receipts in futures is always difficult to solve, and the function of value discovery in futures market can not be exerted. See thunder.