Xiao Fengbo: The Bottom Of The Cotton Market Has Already Appeared Policy Bottom Still Needs To Wait.

Sino US trade negotiations have ended. Before that, cotton at home and abroad had rebounded to varying degrees. ICE cotton no longer hit a new low, and domestic cotton futures continued to break up.

Although the market is full of expectations for the Sino US trade negotiations, as at the time of the press release, the two sides did not make specific statements after the talks, and the spot and futures markets were both confused.

But in the wake of the rebound of international crude oil and the recent stabilization of financial market, the panic period of cotton futures market has passed, and the bottom of the market has already appeared.

As the Sino US trade dispute will eventually be solved, cotton will usher in a real rebound after the policy is clear.

Although the market is still expected for Sino US negotiations, it is expected that the outcome of the talks will be disappointing.

First of all, from the time of negotiations, the original 2 day talks were extended for half a day. On the one hand, both sides were talking seriously, hoping to reach an effective agreement, but on the one hand, they also reflected that the differences were still relatively large, and it was difficult to reach agreement on the specific implementation; secondly, the level of talks was relatively low.

The talks were set for vice ministerial level negotiations, which could only be achieved in a number of areas, such as expanding imports of agricultural products and energy to the US, but involving the core interests of the US and China, such as intellectual property protection, high technology exports, and high-end manufacturing in China.

The United States is sure to use tariffs as bargaining chips to "coerce" China to implement the core interests first before lifting tariffs on Chinese goods. Finally, even if the talks have made some achievements, China will advance the export of American cotton as a "sincerity", and the United States will then be able to cancel tariffs on Chinese textiles 10%, when the policy base of the cotton industry will emerge.

At present, cotton sales in the northern hemisphere are entering the peak season, and seasonal pressure is gradually being digested.

Cotton prices have fallen by more than 20%, the biggest decline since the launch of new cotton in 2015.

From the seasonality of ICE cotton futures prices, general futures prices formed a low level in the first half of January, rising at the beginning of February, forming a year-round high point in 5-6 months, and then falling to the end of the year.

CFTC announced the fund's net long positions and ICE cotton futures are highly correlated. In 2018, the fund's net long position on cotton has been decreasing since July, and the price of ICE cotton has also declined. Even though the price rebounded in the middle process, the fund still resolutely lightens its positions.

As of December 18th (the latest data could not be released due to the closure of the US government), the net long position of the fund has dropped to 50575 (excluding options), which is at least the same period in the past 4 years. There is little net space in the latter period. This possibility is very low unless the price falls sharply in early 2016 (domestic cotton falls to 10 thousand yuan).

The fund is likely to gradually increase more positions in the first half of 2019, and ICE cotton will rebound gradually.

With the existence of the national storage cotton bank in 2019 (excluding the rotation), the domestic cotton quotas will increase significantly, and the proportion of imported cotton in the total domestic cotton consumption will continue to increase.

With the total consumption of 8 million 500 thousand tons in 2018 and the import volume of 1 million 360 thousand tons in 1-11 months (1-11 months' import volume 1 million 360 thousand tons), the proportion of imported cotton is 17.6%, assuming that the quota is still 894 thousand tons in 2019, plus the 800 thousand tons of sliding tax allowance in 2018, the remaining 660 thousand tons (estimated), the expected import volume is 1 million 860 thousand tons (120+66) in 2019, the import cotton ratio is 21.8%; 2020 cotton imports will reach more than 2 million 500 thousand tons, and the proportion of imported cotton is more than 2 million 500 thousand. With the rising proportion of cotton, the trend of international cotton prices will have an increasing impact on domestic cotton prices, and the international rebound will help the domestic bottom.

With the lowering of the deposit reserve ratio in January and the ease of funds, the confidence of ginning factories and traders will be further strengthened. In the past, the domestic and international cotton prices are showing signs of stabilization in the worst period of the external environment. Whether there is a big rebound or not, it also needs the policy support of the complete Sino US trade war.