The Announcement Of The Notice On Deepening The Reform Of The Target Price Of Cotton Has Greatly Affected The Cotton Market

Recently, the National Development and Reform Commission and the Ministry of Finance jointly issued the Target price Notice of Reform, which determined the target price level of Xinjiang cotton in 2017-2019 to be 18600 yuan per ton. Now is the time for spring ploughing, what impact will the release of the Notice have on the market? The reporter interviewed Feng Mengxiao, the chief economist of the Zhongchu Cotton Information Center.

General Manager Feng believed that the Notice had a ceiling management on the number of cotton in Xinjiang that could enjoy the target price subsidy, and no subsidy would be granted if the ceiling was exceeded. The maximum amount of subsidies is 85% of the national average cotton output in the base period (2012-2014), partially mending the possible distortion of the previous cotton target price subsidy policy on production and trade, and creating conditions for the target price subsidy policy to change from "yellow box" to "blue box".

General Manager Feng said that the Notice changed the previous target price level from one year to three years, and set the target price level of Xinjiang cotton for 2017-2019 at 18600 yuan per ton. This will help growers to formulate more long-term production plans. The target price of cotton in Xinjiang from 2014 to 2016 was 19800 yuan/ton, 19200 yuan/ton and 18600 yuan/ton respectively, showing an overall downward trend. The target price level of cotton in Xinjiang from 2017 to 2019 was 18600 yuan/ton, and the growers got a positive signal of stability and improvement in three years. Under the background of the obvious increase of cotton planting intentions at home and abroad before, it will bring certain negative effects to the current and next year's market. From November 2016 to March 2017, the spot price of domestic cotton increased by 26% compared with the previous year spot price It increased by 19.6%, the highest level since 2003 in the normal year (2009 and 2010, the fluctuation trend of cotton planting area and the international financial crisis overlapped, which was an abnormal year with sharp amplification). As a result, the intention to plant cotton at home and abroad increased significantly in 2017. The USDA Agricultural Outlook Forum predicted that the cotton planting area in the United States in 2017 increased by 1.4 million acres year-on-year, or 14.2%, the highest level since 2012. Some insiders predict that the area of Xinjiang and the mainland may increase by 5-10%, which is a rare phenomenon in many years. As for the seed expansion, it is roughly in line with our expectations before the Spring Festival. People in the cotton industry have basically reached a consensus that the market should not experience major fluctuations.

Mr. Feng analyzed the peripheral environment of the market and said that attention should be paid to the following aspects:

First, according to Trump's new policy, the US fiscal policy will be relatively loose and the monetary policy will be slightly tightened. If relevant policies make progress, the probability of leverage increase of the US government, financial industry, enterprises and households will increase sharply, which may promote the growth of US GDP to 4%.

Second, different from the loose capital environment in 2016, in 2017, Chinese government authorities, financial regulators and commodity exchanges intended to control risks and deleverage, and their regulatory mechanisms will continue to be in a slow upgrading trend.

Third, this year's commodity market has turned from a general sharp rise in 2016 to a clear differentiation. The linkage between cotton futures and the oil market may be closer than a few years ago. Large energy markets, including new energy, shale oil and shale gas, have a strong inhibition on the upper track of the oil price range. The relationship between the United States and Russia has changed from "cold to warm, then cold", The increasing political differences between the major countries in the Middle East and the United States have put pressure on the upward movement of oil prices, which in turn has curbed the cotton futures market. In the previous year, cotton prices rose significantly with the help of commodity prices.

Fourth, according to the monitoring data of China National Business Information Center, in January and February 2017, the retail sales of clothing of 50 major retail enterprises in China fell by 1.6% year on year, and the retail sales of daily necessities fell by 1.9% year on year, but the decline was significantly narrowed compared with - 5.5% and - 5.8% in the same period last year. In February 2017, China's export of textile yarns, fabrics and products reached US $458.677 billion, down 24.6% year on year. Excluding some exchange rate factors (since 2016, the RMB has continued to depreciate against the US dollar, and the exchange rate between RMB and the US dollar in January and February 2016 was 6.54, and the exchange rate between RMB and the US dollar in January and February 2017 was 6.88, which led to a decline in the price of textile and clothing products denominated in US dollars, thus affecting the export volume denominated in US dollars), it can be seen that the export of textiles and clothing is still unsatisfactory. Although China's yarn and cloth markets are showing signs of recovery, compared with cotton raw materials, the downstream textile and clothing terminal markets are significantly less popular, and the overall warming of the cotton industry chain has not yet arrived.

5. Traceability cotton According to the market data, the spot price of domestic cotton near the level of 16000 yuan/ton, Zheng cotton at 17000 yuan/ton, and ICE cotton at 80 cents/pound are in the high range since 2000 (excluding the international financial market in 2008). In the context of tighter investment and financing environment, increased costs and relatively slow warming of the terminal market, the inhibitory effect of high quality raw materials on the expansion of reproduction of enterprises in the middle and lower reaches of the industrial chain will become increasingly obvious. Reducing the inventory of raw materials and finished products, improving the turnover rate of funds, controlling risk exposure, and enhancing the operational efficiency of enterprises may become a compulsory "operation" for managers of physical enterprises.

According to Mr. Feng's analysis, the market and policy outline the cotton price trend in the later period:

First, with the rotation of the scale of national cotton reserves, the inventory consumption ratio of cotton in China and the world will continue to decline, providing support for cotton prices.

Second, the high cost of cotton in this year is a fait accompli. In the middle of November 2016, India abolished large banknotes to "withdraw" Indian cotton, cotton yarn and cotton cloth in low price areas from the international market, and insisted on focusing on Indian cotton in the second half of the year. The introduction of the purchase and storage policy in late December is a shot in the arm for international cotton prices. Indian factors and the rise of the RMB exchange rate against the US dollar have created good opportunities for US cotton exports, and international cotton prices have risen significantly. Interestingly, a number of subjective and objective factors caused the cotton supply environment and price performance to be basically opposite in the second half of 2016 and 2015. In the second half of 2015, the industrial and commercial inventory of cotton at home and abroad tended to dry up, and the price fell into the low range for many years. The current inventory and price range are different.

Third, while grasping the subtle relationship between the overall supply and demand of cotton and the center of gravity of cotton prices, we need to pay attention to the upcoming new supply of cotton resources and the pressure red line formed by the market and policy environment. In 2015, the specific reasons for the rotation of national reserve cotton, the soaring market and the competitive purchase of reserve cotton, which achieved high returns in many ways, need to be viewed objectively. Whether the routine of the previous year can continue to be used deserves careful consideration.

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