Sino US Trade Disputes On Cotton More Profitable To Be Fermented

The impact of Sino US trade disputes on the negative impact of cotton market is coming to an end. In terms of absolute price, fund preference, planting cost, industrial inventory and wheel storage policy, cotton price is underestimated, overcorrecting while saving potential.

Under the background of escalating trade disputes between China and the United States, the logic of demand decline has replaced the traditional supply logic as the core factor driving down cotton prices. The Zheng cotton index has fallen by about 34% since June 2018, reaching an average of 34% decline. Cotton prices have fallen sharply below the cost of planting, the absolute price is close to historical lows, and most of the profits are released. In the long run, cotton prices are undervalued, and are at the stage of "overcast and healthy Yang".

Most of the bad has been released.

The United States is the largest exporter of cotton, China is the largest exporter of textile and clothing, and the two are important destinations for export. Therefore, Sino US trade disputes are the core factors that can not be avoided in cotton market. The latest impact of the current trade dispute on cotton market has three points: first, the 25% tariff that has been imposed on goods exported to the United States for 50 billion and 200 billion dollars has not been abolished, affecting about 17% of the export of textiles and clothing to the United States; two, since September 1st, it has imposed a 10% tariff on US $300 billion exports to the United States, affecting most of the remaining exports to the United States and textiles, and the US winter orders are worrisome. Three is that the US cotton imports are still subject to 25% punitive tariffs, and China has suspended the purchase of US agricultural products. At this point, the tax threat of trade disputes has included all exports to the US textile and clothing. The ultimate estimate is that if the market is completely lost, the domestic cotton consumption will drop by 80-100 tons, and its cotton market profits are coming to an end. However, the tax increase for us $300 billion will probably be increased from 10% to 25%. Cotton prices may be used to finish the bear market's last fall, and it may also be seen as the bottom of the negative passivation.

According to the survey, cotton spinning industry is close to free competition, with an average gross profit margin of 10-15% and an average net interest rate of 4-6%. The industry's ability to resist systemic risk is weak. Orders change will have a greater impact on business operations. Cotton, cotton, cotton, dyeing and clothing industry chain is very long, and the action of each link will form an amplification effect at the end of raw material procurement, showing a very strong active replenishment and passive library characteristics. Once the trade dispute is logically recognized by the market, it will magnify the expected amplification effect of the sentiment, and the market will deal with the foreseeable worst case, not just stick to the actual consumption decline, so the pessimism of the transaction is expected to be far ahead of the fact, and it can not be worse. I believe that the trade dispute is coming to an end in the cotton market, and the market has priced the worst.

Overcorrection, buried in the Lido

From the perspective of absolute price, fund preference, planting cost, industrial inventory and wheel storage policy, cotton price is underestimated or overcorrected, and it also has potential savings. In addition to the extreme value of the 10000 yuan / ton in the 2008 financial crisis and the massive dumping in 2016, the zhengmian index runs at about 12000 yuan / ton for most of the time. At present, the Zheng cotton index is close to the historical extreme value, which is roughly the same as the low point when cotton was listed in 2004. In the past 15 years, 49% of inflation and 7 times of monetary growth did not seem to have left a trace on cotton. Since June 2018, the fund has increased the number of US cotton shorts following the trade dispute situation. At present, the fund's net share is 13.4%, the highest level since June 2006, and once the expected improvement is very easy to trigger a stampede.

In terms of cost, the total cost of international cotton planting is 66-69 cents / pound, the cost of domestic cotton planting is 13000-15000 yuan / ton, and domestic and foreign cotton prices have already fallen below the cost of planting. According to the data, cotton industry inventory in the early August was 29.5 days, a decrease of 8.1 days compared with that of the previous year, and the yarn inventory was 29.1 days, an increase of 12.2 days compared with that of the previous year. The storage of storage for 51 days increased 13.1 days compared with the same period last year. Cotton industry stock pressure is not big, if the market outlook is expected to improve, replenishment market can still be expected, but yarn and cloth storage pressure is still in existence, this driving force will be discounted. It is understood that in the 9-12 month, the state may also enter the Xinjiang cotton and foreign cotton replenish national reserve stocks to achieve zero net annual target, which will help increase the export of cotton and ease the pressure of new flower listing and commercial inventories.

To sum up, the impact of Sino US trade disputes on cotton market profits is coming to an end. The market has priced the worst cases. From absolute prices, fund preferences, planting costs, industrial inventories and wheel storage policies, cotton prices are undervalued and overvalued, while saving potential.