Why Did Cotton Futures Plummet? In The Future, Overall Or Vulnerable.

Cotton futures plummeted this week. At first glance, cotton is one of the many victims of Sino US trade. But trade is actually the last straw to crush the camels. Cotton prices have been falling since mid April, and in the fourteen year high of cotton production in the US, the shadow of China's downstream consumption is still shrouded in cotton investors' minds.

What happened?

In May 13th, domestic and foreign cotton futures collectively fell sharply. China's domestic cotton and cotton yarn futures both closed down, and the main contracts were closed at 14560 yuan / ton and 23570 yuan / ton respectively.

On the 13 day of the eastern time of the United States, the New York Intercontinental Exchange (ICE) July delivery of cotton futures fell 3 cents / pound, or 4.4%, hitting the limit and falling to 65.54 cents / pound, the lowest since September 1, 2016, and the largest percentage decline since June.

On the 14 day, the CF1909 contract of zhengmian main contract opened at 14300 yuan / ton, closing at 13820 yuan / ton, down 7.03%.

On the 14 day, Zheng Shang issued a letter of risk warning that the futures prices of cotton, cotton yarn, red dates and PTA varieties fluctuated greatly in recent years, and there were many uncertainties in the market.

Why collapse

Trade war becomes the "culprit"

From a macro perspective, the direct push of the cotton futures slump is the intensification of trade tensions. On the 13 day, China announced further tariffs on some imports of US goods as a response to the US tariff increase last Friday. On the same day, the news broadcast also clearly expressed China's position, saying that China had prepared for a comprehensive response.

The United States is the world's largest exporter of cotton, and more than 3/4 of domestic cotton is used for export, which is heavily dependent on China's main consumer country. The cotton market naturally pays close attention to Sino US relations.

As the panic in the 14 day market eased trade relations, the US cotton futures also rebounded, weighing 66 cents / pound, up about 1.9% on the same day. 14, the domestic evening market, cotton futures intraday rose slightly, eventually down 0.04%.

Two "accomplices" should not be ignored.

From the supply side, the prospect of high cotton output in the US has prompted investors to become empty headed, and trade relations have intensified the bearish sentiment.

Wall Street knowledge has mentioned that from 2015 to 2017, cotton production in the United States has increased for three consecutive years. This year, cotton production in the United States is favorable for crop growth. Last week's weekly crop growth report released by the US Department of agriculture (USDA) showed that the main cotton growing areas are in good condition. By the week May 5th, the cotton planting rate in the United States was 18%, 11% in the previous week, 19% in the same period last year, and 19% in the five year.

USDA's May supply and demand report released last week also predicted that the US cotton output in May will increase by 20% to 22 million packages (or 4 million 790 thousand tons) over the same period, higher than that of Bloomberg's analysts and a fourteen year high. The final inventory increased by 37.6% to 1 million 393 thousand tons compared with the same period last year, and the inventory consumption ratio was 32%, a eleven year high. The average price of cotton producers is expected to be 65 cents per pound, down 5 cents or 7.7%.

CFTC data show that as of the week May 7th, the cotton position of hedge funds has changed from net to warehouse, which is the first empty warehouse scale in the 3 months since the beginning of this year.

Although the same is a big drop, but the domestic people believe that the decline of cotton in the internal market is more downstream consumption is poor, that is, the downstream cotton textile exports concerns.

In April this year, China's textile and garment exports amounted to 19 billion 460 million US dollars, down 9.43% from the same period last year, of which textiles and clothing decreased by 6.9% and 11.9% respectively over the same period last year. In the first four months of this year, the export of textile and clothing in China was reduced by 3.9%, and the export of textiles was increased by 0.8% over the same period.

According to the market research, a number of American customers have cancelled the export orders for domestic textile and clothing because of the trade uncertainties, and the customers have been using trade wars as an excuse to lower prices, resulting in traders unable to take orders, according to a report from the Wall Street research column.

According to the China times, some cotton traders revealed that the current market is too cold, not only a small number of participants, but also a small number of orders, and many factors that are not conducive to the long-term stable development of the market are intertwined, making it difficult for everyone to feel secure.

Hong Runxia, general manager of the Yangtze futures cotton textile industry division, also mentioned that in addition to the increase in global output over the past three years and the possibility of much greater production next year, the weak cotton price also stems from the fact that cotton is still being sold to the market when supply and demand balance.

What will happen in the future?