Can China And Us Reach A Phase Agreement To Drive Cotton Prices To Continue To Rebound?

The thirteenth round of high-level Sino US economic and trade consultations initially reached the "first stage" trade agreement, and the trade friction between China and the United States was phased down. Can the superposition of macro and industrial profits drive cotton prices to continue to rebound?

Sino US trade temporarily "truce"

According to Xinhua news agency, Washington, October 11, the two sides made substantial progress in agriculture, exchange rate, technology transfer, dispute settlement and other fields under the guidance of the important consensus of leaders of the two countries.

According to the information conveyed by the two sides after the meeting, the trend of Sino US trade frictions has been alleviated. The US side postponed the US $250 billion tariff increase from 25% to 30% in October 15th, thus avoiding a worse situation. In addition, China has committed to buy US agricultural products worth 40 billion -500 billion US dollars.

Latest news: China hopes to conduct further negotiations with the United States by the end of October this year, so as to finalize the details of the first stage trade agreement. If so, then the heads of state of the two countries will be able to sign the agreement during the APEC summit in Chile in November. At present, China and the United States have not yet announced the time for the next round of high-level trade negotiations.

What's the impact on the import and export of agricultural products between China and the United States?

If China's purchase of agricultural products from the United States from 40 billion to 50 billion dollars is settled, how much will it affect the import and export of agricultural products between China and the United States? Referring to the 2017 before the Sino US trade dispute, the detailed breakdown of the import and export of agricultural products between China and the United States was as follows.

Table 1:2017 China's imports of agricultural products and the proportion of exports to the United States

In 2017, the import and export volume of China's agricultural products amounted to US $199 billion 800 million, of which China's agricultural exports amounted to US $75 billion 140 million, and China's agricultural products imports amounted to US $124 billion 690 million, of which US $24 billion 80 million was imported from agricultural products, accounting for 19.3%.

The main products of China's agricultural products are soybean (mainly 32%), grain and timber, followed by cotton (1.8%). Among them, China's imports of agricultural products to the United States the highest dependence on imports of the United States for the allocation of animal feed (51.8%), followed by cotton (44.7%) and soybeans (35.2%).

In 2017, the gross export volume of agricultural products in the United States was roughly $130 billion (there was a certain error), and the varieties with high dependence on China's exports were soybeans (64.7%), sawn timber (45%) and cotton (16.8%).

It can be seen that the purchase amount of agricultural products from 40 billion to 50 billion dollars (the time needed for the purchase is not yet mentioned) is equivalent to the total import volume in China for about two years, and the export volume of all the agricultural products in the United States for about 1/3 a year, which will have a huge impact on the bilateral trade relations and will affect the supply and demand structure of the main agricultural products in the two countries.

What is the impact on China's cotton market?

As far as cotton is concerned, the US cotton output in 19/20 is expected to be 4 million 730 thousand tons, the end of 18/19 will be 1 million 60 thousand tons, and domestic consumption will be 700 thousand tons. This year has signed 2 million 70 thousand tons, and the surplus can be sold for about 3 million tons.

If China buys tens of millions or even millions of tons of cotton in the United States, it will substantially increase the price of American cotton and affect the supply and demand of cotton in the international market. At the same time, increasing domestic market supply, the domestic market should consider buying behavior as direct market purchase or replenish the National Treasury by way of rotation (when the former cotton stock is about 1 million 750 thousand tons, equivalent to domestic cotton consumption in about 3 months).

If direct market purchases, domestic supply is excessive, leading to internal market price pressure; but internal and external prices are serious, imports of cotton and imported yarn will continue to shrink, promote domestic yarn consumption, the internal market is also limited, in the long run, it is still the internal and external price differential repair, the internal market follows the upward trend of the outside market.

If the company enters the country to avoid direct impact on the domestic market, the price of the internal market will rise with the external market. If China buys a lot of American cotton, it will be more likely to enter the country through the State Reserve.

After the end of the national cotton mill, the market is expected to strengthen the entry of the national cotton store. According to market analysis, it is estimated that 100-150 million tons of cotton will be imported, and the probability of entering the outer cotton will be greater. According to the national cotton market monitoring system, as early as the beginning of October, the average daily use of cotton in the sample survey enterprises was about 28.1 days (including the quantity of imported cotton), an increase of 0.5 days, a decrease of 11.6 days compared with that of the previous year, 63.8% of the enterprises preparing to purchase cotton, an increase of 9.4 percentage points, an increase of 0.9 percentage points compared to the same period last year, and a 27.1 day sale of yarn inventory, a 1.6 day reduction in the chain, an increase of 8.6 days compared with the same period last year.

Rational analysis: cotton prices are hard to break through

Recently, Zheng cotton continued to rise. Indeed, it has attracted market attention. After a relatively long period of relative shock, the rise seemed to boost market confidence and analyze the reasons carefully. This round of rebound was mainly caused by the North Xinjiang's production reduction and Sino US economic and trade consultations, which made substantial progress. Of course, whether these two factors can be fully landed is questionable.

According to some Xinjiang research group, North Xinjiang is expected to reduce production by 10-20%, with an average yield of about 50 kg per mu, while the output in southern Xinjiang is basically stable. Judging from this feedback, the rate of reduction in production is not small, which seems to cause waves to the market. Judging from past statistics, the output of Northern Xinjiang is lower than that of the southern Xinjiang. Under the premise that the output is basically stable in the southern Xinjiang, the impact of the North Xinjiang's reduction on production is limited. Moreover, the actual output needs to be further verified.

In addition, the rebound is related to the Sino US economic and trade consultations. In the case of "beating, talking, talking and beating" for more than a year, the United States and China have been able to get the same and the opposite direction. Naturally, the market has been encouraged. But we should also see that the US side has not abolished tariffs imposed on China, but has postponed the increase in tariffs. This should keep the market vigilant. There is still a long way to go for a complete settlement of Sino US economic and trade relations.

Looking at the downstream demand, although the textile industry is in the golden period of "golden nine silver ten", but the basic business is to maintain production. There is a big gap between the textile companies and the same period last year.

Under the influence of Sino US trade friction, the domestic textile industry has indeed encountered difficulties, and the transfer of production orders is an indisputable fact. From the relevant foreign trade data, we can see the fact of decline.

According to the Vietnam textile and Apparel Association (VITAS), exports of textiles, fabrics and fabrics in Vietnam amounted to US $25 billion 700 million in the first 8 months of 2019, up 8.6% from the same period last year, of which foreign direct investment accounted for 60.6%. It is worth noting that Vietnam has become the world's third largest exporter of textiles and clothing, second only to China and India.

This increase or decrease has clearly told us that under the relatively stable supply situation, downstream consumption is still under heavy pressure. At this stage, cotton prices are difficult to break through.

To sum up, Sino US trade has not yet been completely resolved, and many uncertainties remain. At present, it is difficult to sell lint in the spot market, and the supply of new cotton is still increasing. Whether the late price will fall again to 12000 yuan / ton remains to be seen. Therefore, we should treat all kinds of factors in a comprehensive way and treat the rise and fall of cotton prices calmly. (source of China's cotton net, China yarn net, network)