Is The Worst Time In The Cotton Market? Watch Out For These Accidents!

In May last year, Zheng cotton "soaring", but in May this year, it encountered "collapse" under the cost.

This fluctuates, which is the personality of cotton market and "love hate" for the industry.

At present, the cotton market has entered the "darkest hour".

It can be said that Sino US trade friction is the primary factor that causes great changes in the market.

Sino US economic and trade consultations always affect the market nerves, because it determines our export orders to the US textile products.

Without downstream consumption, cotton prices will not rise.

At present, the supply is very high, commercial inventories are high, state reserve stocks are out of stock, and 800 thousand tons of quotas have been issued, coupled with the prospect of supply and demand in the May USDA report.

But is this the worst case in the market?

Maybe, because there are still bad scenarios.

Changes in Sino US economic and trade negotiations determine market orientation.

In the second half of last year, Zheng cotton entered a long decline. The main factor was the tortuous trade consultation between China and the United States, and its downstream textile consumption also declined.

The fuse for detonating cotton is the US tariff rate on imports of $200 billion from China has increased from 10% to 25%.

From this factor alone, the impact on cotton consumption and export of cotton products is very limited.

However, the market does not think so. The market has already included the worst scenario: if the US impose tariffs on the remaining 300 billion US dollars, it will include China's larger exports of goods to the United States, such as woven garments, knitted apparel and home textile products, which involve about 45 billion US dollars in exports to the United States.

So insiders calculate that if exports to the United States are blocked, it is estimated that domestic consumption will be reduced by about 1 million tons (-12%).

The US tax timetable for the remaining commodities is scheduled for the middle of June.

Today, Zheng cotton has included the worst case.

If the United States continues to expand the scope of tax increases as planned, the impact of Zheng cotton will not only be psychological, but also be reflected in the price level, but the scope is limited.

Is there any worse case?

That is the Sino US economic and trade consultations "closed".

So the pattern of global consumption will undergo significant changes.

The timetable is tentatively scheduled for the end of June (G20 summit in Japan).

From the actual consumption situation, the consumption of textile and clothing has been weakening since April.

Customs data show that in April 2019, China's exports of textiles and clothing decreased by 9.4% over the same period last year, and exports decreased by 8.4% in the 1-4 months.

Effective supply is adequate.

According to the China Cotton Association data, the total amount of cotton stock in the country was about 3 million 790 thousand tons at the end of April, and the monthly ring ratio was reduced by 360 thousand tons, but it increased by 920 thousand tons over the same period.

It can be seen that the domestic cotton commercial stock is in the high and slow decline at the same time.

The 800 thousand tons of quasi tax quotas issued earlier this year were earlier than last year. It is estimated that the imported cotton will arrive in June.

In April 23rd, the State Reserve Bureau announced that in order to optimize the central reserve cotton structure, some central cotton reserves would be rotated in 2019.

From May 5th to September 30th, the total output was 1 million tons. In principle, every working day was sold for about 10 thousand tons.

From the actual paction, before May 13th, all cotton reserves maintained a 100% turnover rate.

Compared with commercial cotton, reserve cotton has higher cost performance.

However, with the fall of zhengmian and the sharp decline of cotton, there has been a sharp fall in the auction rate of cotton reserves.

According to the announcement of the bottom price announcement of China cotton net, third weeks (20-24 days in May) a round sale price of 13893 yuan / ton (standard class price), compared with the previous week, fell 579 yuan / ton.

From the perspective of supply, the above 3 additivity can be drawn, and the supply volume is 5-9 tons in 5 million 590 thousand months.

Compared to the monthly consumption of about 700 thousand tons, the supply is greater than the demand of about 2 million 90 thousand tons.

It seems that this period of cotton effective supply is very sufficient.

From the perspective of hedging, 18593 cotton registered warehouse receipts were registered as of May 22nd, equivalent to 743 thousand tons of cotton.

As a result of the 1905 contract deliveries, there will be about 100 thousand tonnes of solid deliveries, so the warehouse receipts will show a small outflow.

Such a huge sum of hedging warehouse receipts will be suppressed in the 1909 contract.

At present, the price of the 1909 contract is about 13500 yuan / ton, and it will not be interested in the sale of hedging, because the cost of the 3128 stage machine is about 15200 yuan / ton.

However, as long as prices rise to the right psychological level, there is still a large demand for hedging.

It can be envisaged that if Zheng cotton appears bottoming up, there will be many hedging blocks on the way.

The May USDA report shows an empty prospect.

The seeding in the northern hemisphere is now coming to an end.

It is reported that the intention of planting cotton in China is 47 million 530 thousand mu, down 1.5% from the same period last year.

Cotton planting area in the United States is 13 million 780 thousand acres, down 2.2% from the same period last year.

Such a reduction will cause the market to become sensitive to weather fluctuations.

But in May, the USDA supply and demand report gave a partial view.

From the point of view of supply and demand in the United States, although the planting area has declined this year, the US cotton production is expected to reach 4 million 790 thousand tons in 2019/20, an increase of 790 thousand tons (+20%) compared with the same period last year, and the increase in export volume from 490 thousand tons to 3 million 700 thousand tons, leading to an increase of 37% to 1 million 390 thousand tons in the end of the stock.

From the perspective of global supply and demand, global cotton production will grow in 2019/20, up 1 million 520 thousand tons to 27 million 340 thousand tons compared with the same period, but it is expected that consumption will only increase from 700 thousand tons to 27 million 450 thousand tons during the year.

It is clear that production and demand have returned to a state of easy balance, resulting in a slight decline in end inventory (16 million 500 thousand tons) and inventory consumption ratio (60%).

By contrast, global production demand this year has a supply gap of 933 thousand tons, which is in a tight balance.

According to USDA data, the increase of global cotton output in 2019/20 mainly comes from the United States and India. However, the global demand is limited. It is expected that the US cotton will show parallel seasonal fluctuations.

However, the data itself will be greatly adjusted along with the change of the weather and macro situation.

From the perspective of supply and demand in China, cotton production in China basically remained unchanged at 2019/20 in the year of 6 million 49 thousand, the consumption volume increased by 491 thousand tons to 9 million 47 thousand tons in the next year, and the import volume increased from 545 thousand tons to 2 million 398 thousand tons; the end of the stock dropped by 628 thousand tons to 6 million 701 thousand tons (warehouse to consumption ratio 74%).

Compared with 2018/19, China's final inventory dropped to 7 million 330 thousand tons (sink to consumption ratio 83%).

Although the gap in 2019/20 was up to 2 million 998 thousand tons, most of them were filled by imports, resulting in a small drop in inventory.

If the Sino US trade talks break down or the global economic downturn is going on, then cotton consumption will not increase but decrease.

Conclusion: the worst period has passed?

Now, under the prospect of adequate supply, China's export orders to the United States have "shock", "engine" flameout, resulting in the price plummeting is not difficult to understand.

What we want to know now is: has the worst time passed?

It should be said that the biggest bad profit is basically released, so Zheng cotton has limited space to fall.

But there are two situations that are beyond expectations: one is the complete breakup of Sino US trade negotiations; the two is that negotiations have evolved into a lasting "cold war".

Now give the corresponding speculation in chronological order.

In mid 1.6, it was concerned about whether the United States would impose tariffs on China's remaining $300 billion export commodities.

If it increases the difficulty of negotiation, it will have a limited impact on cotton market.

At the end of 2.6, the G20 summit was held in Japan, focusing on Sino US summit and possible outcomes.

This is a very important time node and determines whether the Sino US trade negotiations can achieve substantive results.

As long as some results can be achieved, then for cotton will be a great good, otherwise it will fall into a long weak state.

3. in the fourth quarter, the market focuses on cotton production in China and the United States.

1909 contract delivery pressure and late cotton hedging expectations and pressure.

Before and after December, the focus of attention was whether the procurement and consumption in winter would enter the peak season as scheduled.

On the whole, if China's new cotton crop is cut down in the fall, the 1 million tons of cotton will be restocked and the economic and trade consultations between China and the United States will resume. Then, after the 1909 contract delivery, driven by the winter consumption season, the market is expected to form a wave of rising prices and will continue until next spring. This will be the most optimistic expectation.