New Year Demand Gap Is Expected To Boost Cotton Prices Upward

Since the beginning of April, cotton planting in various cotton regions has started in succession.

Up to now, the national cotton planting work has been completed in 2019.

According to the market and early warning Committee of the Ministry of agriculture and rural areas, China's cotton planting area has declined in 2019.

Recently, domestic and foreign cotton prices have plummeted. It is expected that the price of China's cotton market is expected to rebound before the new cotton market opens annually.

The target year of cotton price reform is approaching, and the latter market is faced with many situations that need to be considered and solved.

Planting income declined, planting area is expected to decline in 2019

At the end of 9 2018, new cotton came into the market, and the impact of Sino US economic and trade frictions on domestic cotton market began to appear.

The purchase price of seed cotton in the main cotton regions of the country showed a trend of high opening and low going, and the price dropped compared with the same period last year. The cotton seed cotton sale situation was not ideal, and the planting income was expected to decline compared with the previous year, which affected cotton growers' willingness to plant cotton.

According to the market and early warning Expert Committee of the Ministry of agriculture and rural areas, China's cotton planting area was around 49 million 500 thousand mu in 2019, down 2% from the previous year.

From Xinjiang, cotton target price subsidy funds have not yet been released in 2018, and there is still uncertainty about cotton growers' income.

Under the stimulation of uplink and subsidy of cotton prices in recent years, the scale of cotton production in Xinjiang has reached a high level, and the water and soil resources are obviously restrained.

Driven by the goal of cotton reduction in the autonomous region, the sub cotton region will be partially withdrawn. The low yield cotton area in southern Xinjiang has also been reduced with the adjustment of the planting structure. The decline of cotton production scale in Xinjiang has become inevitable.

From the perspective of the mainland, the amount of cotton subsidy funds in provinces and autonomous regions is low and the payment time is late, so it is difficult to stimulate cotton farmers' enthusiasm for planting cotton.

In recent years, the situation of continuous reduction of cotton planting area in mainland cotton areas has not been improved with the shrinking of supporting industries such as seed production, processing, social service and other supporting industries in the mainland, as well as the sustained increase in artificial costs and the improvement of the benefits of alternative crops (corn and wheat).

The current supply and demand pattern is loose, and the downward pressure on prices is greater.

From September 2018 to April 2019, the price of domestic standard grade (3128B) cotton dropped from 16313 yuan / ton to 15660 yuan / ton. The downstream textile and garment exports were not strong enough, the enthusiasm of purchasing cotton enterprises was not high, and the price of cotton was down.

From the current domestic cotton supply and demand pattern, the current cotton production and demand pattern is still loose.

On the supply side, domestic cotton output reached 6 million 100 thousand tons in 2018, the highest level in nearly 4 years, and the sales rate of new cotton was slower than that of the previous year.

According to the sampling survey of China cotton information network, as of the end of March, the total cotton business inventory in China was about 4 million 164 thousand tons, up 18.7% over the same period, and the national cotton industry inventory was about 842 thousand tons, up 15.9% over the same period.

Since May 5th, the total output of cotton reserves has reached 1 million tons.

In addition, 800 thousand tons of quasi tax quotas were issued in 2019, and the supply of domestic cotton market was adequate before new cotton came into the market in 2019.

In terms of demand, the export situation of textile and clothing continued to be poor in 2018/19, cotton orders grew slowly, cotton yarn prices were difficult to raise, resulting in a weak willingness to buy cotton.

Meanwhile, cotton yarn in India, Vietnam and Pakistan has a great impact on China, which has squeezed domestic cotton demand.

The current loose market situation of supply and demand has brought great downward pressure on cotton prices.

In particular, Sino US economic and trade frictions intensified, the market uncertainty increased, and the business owners' confidence was insufficient. Zheng cotton futures contract fell sharply in the middle and late 5 months.

The subsequent market price will be mainly affected by the progress of trade consultation and the weather speculation of the new cotton growth period, and it may also cause the severe fluctuation of the market price at the stage.

And with the coming of the new year, the gap between production and demand is expected to boost cotton prices.

Ensuring the rational distribution of industries and stable operation of the market

There are still some questions worth thinking about.

First, how to supplement domestic production and demand gaps.

Over the past three years, cotton inventory has been effective in China. Cotton inventory level has dropped to a historical low level, and the ability to regulate and control the market has also declined significantly.

China's cotton production and demand gap will exist for a long time. Cotton supply in 2019/20 is obviously insufficient. Cotton import demand will be concentrated in the second half of this year or next year.

The reserve cotton rotation policy and the sliding tax quota policy need to co-ordinate early arrangement. On the one hand, policies should normalize and stabilize market confidence; on the other hand, flexible implementation of market timing will prevent market prices from rising and falling.

The two is how to guarantee production capacity when the Xinjiang policy expires.

2019 is the year of ending the cotton target price subsidy policy. The next stage of policy adjustment will be related to the scale of cotton production in Xinjiang and the level of cotton self sufficiency in China.

The current cotton price subsidy policy in Xinjiang also needs to face a series of problems such as international trade rules, fiscal expenditure burden and operation cost. The follow-up policy adjustment needs to coordinate the upstream and downstream relations of the industry, and consider the interests of various departments and subjects as a whole, so as to form a set of policy systems that give consideration to fairness and efficiency.

Three, how to implement the industry support policy in the mainland cotton area.

In recent years, the shrinkage of cotton fields in the mainland has been too fast, and the upstream production and downstream processing and weaving are also declining.

In 2018, the cotton production protection areas in the 5 provinces of the mainland have been completed, but the supporting policies have not yet been announced. How to integrate the existing cotton production subsidies, formulate efficient ways of use, and effectively support the sustainable development of cotton production in the mainland is another key way to ensure the rational distribution of domestic cotton industry and the stable operation of the market.