This Year'S Cotton Rhapsody: The Three Trend Is "Startling At Every Step".

Key factors affecting the market

1. one of the major contradictions: Sino US trade issues

Trade between China and the United States is deeply affecting the consumption demand of cotton upstream and downstream.

This is also the main reason for the sharp fall in cotton in the second half of last year.

The downturn in consumption led to the fall of Zheng cotton to the cost of the oscillation, without consumption driven, there will be no real rise.

In March, the market is waiting for the outcome of Sino US negotiations.

Finally, the United States postponed the original time for adding tariffs to China's US products in March 1st.

In addition, the summit between China and the United States will be held sometime in March to sign a possible agreement.

After nearly 1 years of turmoil, China and the United States finally show their optimism.

We expect that cotton consumption will gradually return to normal after March.

Only when consumption is revival can cotton prices rise.

2. two of the main contradiction: huge warehouse receipts

Huge warehouse receipts are caused by market indigestion.

As of February 25th, Zheng cotton registered 17168 warehouse receipts, equivalent to 686 thousand tons of cotton.

After the May delivery, the registered warehouse receipts will enter the "de Stocking" stage, but the second half of last year showed a sustained growth trend.

Because of the downturn in consumption, cotton processors had to sell cotton with futures, resulting in a continuous increase in registered warehouse receipts.

Recently, however, the registration of cotton warehouse receipts has stagnated and reduced. This may be the start signal of consumption after the Spring Festival.

According to industry estimates, if the 1905 contract rises to 15400 yuan / ton, then spot sellers will sell in value, because 60% new cotton is not sold.

According to the exchange data, there are about 70 thousand tons of old cotton in the current registered warehouse receipt, and the remaining ones are new cotton.

As for the new cotton warehouse receipt, it will need to wait until the 1905 contract is delivered.

The accumulation of warehouse receipts is, in the final analysis, a result of sluggish consumption.

According to USDA data, China consumes about 730 thousand tons of cotton per month.

So once the consumption increases, the pressure on warehouse receipts is easy to digest.

The Sino US trade issue in March has bright prospects.

At the same time, spring is also the peak season for cotton spinning enterprises.

If so, cotton prices will show a slow growth trend before May, driven by the revival of consumption.

Events and timing affecting the market process

1. throw store

According to convention, after the Spring Festival, domestic cotton will be launched.

Last year it began in March 12th and ended at the end of September, with a total turnover of 2 million 510 thousand tons.

According to industry estimates, the remaining 2 million 700 thousand tons of state cotton stocks.

That is to say, if this year continues to be auctioned according to the plan and volume of last year, the stock of State Reserve will almost be emptied by September.

It can be said that after several years of national cotton auction, the "go to stock" task was basically completed.

If 2018/19 does not replenish its stock, then the market adjustment effect will be greatly reduced in the future.

Therefore, in order to maintain certain regulation of the market, the state level will certainly need to replenish the stock, while continuing to turn out some of Chen cotton.

So far, the market has not yet thrown away the storage side information, considering that the state cotton stocks have reached the low level, the departure time or postponed compared with previous years.

Therefore, when should we pay attention to when and how to throw it away?

When and how to replenish the stock?

There are hidden positive factors here.

2. seeding and growth

In the 4-5 month, cotton entered the initial stage of seeding and growth.

At this time, the planting area of cotton in China and the United States is an important data.

The area determines the general range of output and determines the price trend.

According to the USDA practice, the intentional planting area of cotton in the United States and China is published every March 31st.

This is an official authoritative data.

Recently, China Cotton Association's survey data are as follows: the cotton planting area of this year is 47 million 710 thousand mu, a decrease of 2.7% compared with the same period last year.

In addition, according to the USDA Forecast Forum preliminary forecast: this year, the US cotton planting area is 14 million 300 thousand acres, an increase of 1.1% over the same period last year.

After planting and growing, the market will give high attention.

At this stage, area and weather are hype themes.

Last May, Zheng cotton rose sharply because of the bad weather at that time.

3.1905 contract delivery

By mid May, huge warehouse receipts were facing deliveries.

At that time, this will be an important moment for testing downstream cotton enterprises.

How many new cotton warehouse receipts have been delivered?

What liquidation price is willing to undertake?

This is an important basis for judging the future direction of cotton.

1905 after the delivery of the contract, some warehouse receipts will flow into the stock market, so the market pressure will be greatly reduced. Some will continue to turn to the September contract for arbitrage.

These data reflect the prevailing market mentality and provide guidance for subsequent market fluctuations.

4. autumn harvest season

Entering the September, cotton in the northern hemisphere basically entered the picking season.

Cotton picking period generally lasted 3 months, from 9-11 months.

At this time, the weather changes still have a great impact on cotton yield.

Despite the harvest pressure, the market price is easy to descend; in history, the big market is also at this stage due to the reduction of weather.

In 2003 and 2010.

As far as the agricultural products are concerned, the larger market is in the harvest time, because the output becomes a fixed number.

Zheng cotton's gap in production and demand persists.

"Going stock" is the strategic task of China's agricultural supply side reform.

The cotton market is no exception.

After several years of inventory "de", stocks gradually entered the normal state.

If we do not replenish the stock, we expect that the national cotton reserves will basically run out this year.

In recent years, the strategy of "de Stocking" in China's cotton industry is to restrict imports, while at the same time benefiting from the limited growth of sown area, the demand has been rising rigidly.

The gap between production and demand persists, and stocks are gradually reduced from normal to normal.

According to USDA data, "de Stocking" was opened in 2015/16. In that year, China produced 5 million 639 thousand tons, 7 million 838 thousand tons of demand, 959 thousand tons of imports, and 2 million 199 thousand tons of production demand gap, resulting in the end of stock reduction to 12 million 345 thousand tons, and its inventory / consumption ratio was 157%.

In 2016/17, China produced 5 million 879 thousand tons, 8 million 382 thousand tons of demand, 1 million 95 thousand tons of imports, and 2 million 503 thousand tons of production and demand gap, resulting in the end of stock reduction to 9 million 998 thousand tons, and its inventory / consumption ratio was 119%.

In 2017/18, China produced 6 million 314 thousand tons, 8 million 927 thousand tons of demand, 1 million 246 thousand tons of imports, and 2 million 613 thousand tons of production and demand gap, resulting in the end of stock reduction to 8 million 278 thousand tons, and the inventory / consumption ratio down to 92%.

In 2018/19, China produced 5 million 879 thousand tons, 8 million 818 thousand tons of demand and 1 million 633 thousand tons of imports, and the gap between production and demand reached 2 million 939 thousand tons, resulting in the end of stock reduction to 7 million 48 thousand tons and the inventory / consumption ratio down to 80%.

That is to say, by the end of this year, cotton inventory in China has basically entered the normal stage this autumn, but it is still on the high side.

The reason for slowing down inventory is: because of the Sino US trade problem, cotton consumption has not increased by minus 109 thousand tons, and the import volume has been enlarged.

So what happens in 2019/2020?

According to the February USDA ninety-fifth agricultural products Outlook Forum, it is estimated that China's cotton production will increase slightly to 6 million 100 thousand tons (+1.8%) in February, the consumption will increase to 8 million 990 thousand tons (+2.0%), the import will expand to 1 million 960 thousand tons (+20%), and the gap between production and demand will reach 2 million 790 thousand tons, leading to the end of stock reduction to 6 million 100 thousand tons, and the inventory / consumption ratio to 68%.

Its stock in China is still 1 million 960 thousand tons.

Of course, such an assessment report is preliminary, and there may be a larger revision later.

Sowing area, growth climate, Sino US trade consultation and consumption trend will affect supply and demand inventory data.

Interpretation of the February USDA report and the agricultural products Outlook Forum

1. the US side:

According to the February USDA report, the 2018/19 cotton planting area in the United States was 14 million 100 thousand acres (+11.0%), and the abandoning yield was 25.3%. The output decreased by 551 thousand tons to 4 million 4 thousand tons (-12%), the annual export volume was 3 million 266 thousand tons, and the final inventory was 936 thousand tons.

What is the forecast for 2019/20?

USDA estimated at the ninety-fifth agricultural products Outlook Forum that the sown area of cotton in the United States increased slightly to 14 million 300 thousand acres (+1.1%) this year, and the abandonment rate was only 9.3%. Under normal weather and abandonment rate, the output of cotton in the United States increased by 894 thousand tons to 4 million 988 thousand and 800 tons (+22.3%). The domestic consumption of 2019/20 was estimated to remain 719 thousand tons (+3.1%), but the export volume increased by 440 thousand tons to 3 million 706 thousand tons (+13.3%), and the final inventory increased by 437 thousand tons to 1 million 373 thousand tons.

Despite the modest increase in area, the increase in output has increased by 894 thousand tons (exceeding expectations), enough to meet China's additional import demand, and there is ample inventory surplus.

It can be seen that under normal climatic conditions, the fluctuation of cotton will be limited next year.

Perhaps this is not the case.

Attention should also be paid to the intended planting area officially announced on USDA3 31.

2. global situation:

According to the February USDA report, global cotton production in 2018/19 decreased by 1 million 140 thousand tons to 25 million 790 thousand tons (-4.2%) in the year of -4.2%, slightly increased to 26 million 920 thousand tons (+0.8%) in global consumption, and 1 million 210 thousand tons to 16 million 430 thousand tons (-6.8%) at the end of the year.

For 2018/19, the output of most major producers (such as the US and India) decreased, while global consumption rose slightly (mainly from India, Bangladesh and Vietnam). There was a gap of 1 million 130 thousand tons between production and demand, resulting in a further decline in final inventory to a low level of nearly 7 years.

So the global supply and demand relationship is somewhat tight this year.

Therefore, in the year of 2018/19, under the background of too much international environment, Zheng cotton has the upward fluctuation foundation.

What is the outlook for global supply and demand for 2019/20?

In the USDA Outlook Forum, it is estimated that global output has increased by 1 million 750 thousand tons to 27 million 540 thousand tons (+6.8%), but consumption has increased slightly from 400 thousand tons to 27 million 320 thousand tons (+1.5%).

In that case, the market returned to oversupply and the inventory consumption ratio dropped to 61%.

It seems that in the next year, the global supply and demand of cotton will become loose again, and the growth of supply will mainly come from the United States.

Under such circumstances, the fluctuation range of Zheng cotton will not be surprising, and it will be presented in the form of interval.

This "politically correct" report has a negative effect on the current market.

But historical changes and future facts will not be so mediocre and calm.

Zheng cotton market outlook in 2019

1., maintain a long-term pattern of rising inflation.

In the long term, the rise of cotton stems from the improvement of supply and demand.

The main factors are: cost support, 3128B standard purchase cost at 15200 yuan / ton level.

Trade relations between China and the United States will eventually return to normal.

Global supply and demand of cotton were tight in 2018/19, and inventories dropped by 1 million 210 thousand tons.

China's production and demand gap was 2 million 939 thousand tons in 2018/19, and the final inventory dropped to 7 million 48 thousand tons.

Only 2 million 700 thousand tons of State Cotton remain.

Replenish inventory sooner or later.

However, due to the obvious negative factors such as inventory, the operation of cotton market will fluctuate.

Therefore, for investors, the strategy is: in the interval, customers with stock industry can sell or sell virtual value call options, while those with procurement demand can do more or sell virtual put options on the lower edge of the interval.

Obviously, for those who are willing to make more speculators, they can not be aggressive, but intervene in the case of support when they fall back.

2. trend interpretation

To sum up, we have speculated about the future trend of Zheng cotton.

At the present stage, we will make a forward-looking interpretation of the key factors affecting the future market.

Stage 1:3-6 months, the first wave and the adjustment stage.

In March, trade between China and the United States returned to normal.

Consumer orders began to increase.

In 4-5 months, the policy of dumping and storage was clear, but Yu cotton was limited.

Import and export.

The northern hemisphere has entered the cotton planting period, with a slight increase in China and a slight increase in the US.

Mid May, huge warehouse receipt delivery, market or adjustment.

Stage 2:6-11 month, third wave and adjustment stage.

After planting in May, cotton entered the growth stage in the northern hemisphere in 6-9 months, and the weather sensitivity increased. The storage and storage were carried out at the same time. The supply and demand were tight, and the long suppressed consumption began to recover.

After September, new cotton entered the harvest stage and the price dropped.

Stage 3:11 to next spring, fifth waves.

Early winter is a low consumption season, and also in the harvest season. It is a good time for textile enterprises to purchase and prepare their stores.

From deep winter to spring, it is the peak season for textile industry consumption.