3/4 Month Domestic Cotton Market Trend: Bottom, Top

Since late February, along with the "wind vane" Zheng cotton's rebound, domestic cotton business confidence has entered the rising channel, and the whole cotton market is thriving.

In March 7th, the CF1905 contract price again approached the 15500 yuan / tonne pass. The southern Xinjiang regulatory database "double 28" hand picked cotton (impurity less than 1.5%) gross price quotations also opened 16000 yuan / ton situation, some of the cotton processing enterprises in the territory, cotton traders generally believe that "finally survive the cold winter, wait for spring blossoms".

Recently, cotton enterprises in Xinjiang and elsewhere have sped up the sale of high quality and high spinnable cotton and bundled quotations. The CF1905 contract broke 15500 yuan / ton, or even broke 16000 yuan / ton to become part of the consensus view of hoarding cotton enterprises.

The "double 28/ double 29" cotton spot quotation is reasonably revised to 16000 yuan / ton.

Therefore, the author estimates that even if the CF1905 contract wins 15500 yuan / ton, the enthusiasm of the cotton enterprises to enter the market for hedging (or arbitrage) and avoiding risks is still not high. The warehouse receipts + effective forecast and the breaking of 800 thousand tons need to be strengthened. The cost of cotton lint accumulation and the favorable release from the external market make the cotton enterprise's vision more and more high, and the gambling market mentality is aggravated.

For the trend of domestic cotton market in 3/4 months, the author's view is "falling bottom, rising and top", and cotton enterprises should pay attention to the risks of catching up and doing more.

For Xinjiang's cotton picking cotton enterprises, the CF1905 contract of 15500 yuan / ton is still an opportunity for bulk hedging (including arbitrage).

The reasons include the following points:

First, the key factor in the short-term rise is policy support, which comes from external rather than supply and demand fundamentals.

Since January 2019, the 1 point reserve ratio has been cut two times from the central bank to the GSP tax reduction nationwide.

In 2019, the tax burden on manufacturing and small and micro enterprises was reduced in 2019. The current 16% tax rate in manufacturing and other industries dropped to 13%, and the current 10% tax rate in pportation, construction and other industries dropped to 9%.

Second, the import of US agricultural products by US cotton in China will affect domestic cotton supply and price in any way imported.

In February 28th, American trade negotiator Lai TSE Chi confirmed that China had bought cotton products on the list of US agricultural products, but specific agreements had not yet been reached.

But no matter what way to import, the United States cotton will enter the Chinese warehouse in real terms. The profit margin of ICE and foreign cotton will be greater than the bad ones, while the domestic cotton market will be more empty.

Third, the impact of Zheng cotton's record breaking warehouse receipts on the cotton market can not be underestimated. How to lose weight in 5-9 months is the key to rebound.

According to statistics, as of March 6th, Zheng cotton warehouse receipt 17189 (-27) Zhang, effectively forecast 2446 warehouse receipts, combined to fold cotton 785 thousand tons, although the warehouse receipts and forecast growth slowed sharply or even stagnate recently, but entered March Zheng period still has such a large market pressure has to cause worry.

Fifthly, whether the consumption demand of the downstream cotton yarn is "true growth" or "false breakthrough" and whether the Sino US trade consultation can reach a final agreement remains to be seen.

From the survey of textile enterprises in Henan, Hubei, Anhui, Shandong and other places, the continuous improvement of 40S and below counts of cotton yarn orders has been confirmed, but large single, long list and profit margins are still insufficient, so the demand for gauze can effectively support the uplink of cotton prices.

On the other hand, the two sides of China and the United States continue to release positive signals, but it is advisable to wait or see if the boots are not landed.