Sino US Agreement Reached Three Factors To ICE Cotton Futures Rebound Is Very Restrained.

In December 13th, China and the United States issued a statement declaring the first stage of economic and trade agreement. The global financial market, stock debt market and commodity futures market were jubilant. Investors' worries were greatly alleviated. ICE cotton futures, Zheng cotton and cotton related businesses were mostly the main tone, plus the release of the US cotton export weekly released by USDA. The main contract of ICE broke the 67 cent mark.

However, in the USDA monthly report, which continued to sharply reduce the US cotton output, the end inventory and the Sino US trade negotiations, the rise of ICE was obviously much lower than expected. The fund, the long and the cotton enterprises showed a very restrained performance. The main contract did not quickly open the 68 cents / pound, 70 cents / pound integer entry point. The US plantation operator thought that the cotton price had to go back to 75 to 80 cents per pound to be sustainable. Only when it reached the price could it make profits, otherwise it would significantly restrict the planting in 2020. Some international cotton traders and trade enterprises also recognized that ICE did not perform well. What are the reasons?

First, from the statement issued by the United States and China, there are obvious differences between the contents, wording and focus of the two elements, and some of them are "self playing and singing". Therefore, although the agreement is agreed, the two sides still need the legal procedures and signature of the two parties to pass the agreement. There are still certain variables, especially the US side's change from unilateral execution mechanism to dispute settlement mechanism. Once China fails to increase the import or import amount of American goods as soon as possible, or the Chinese side thinks that the US tariff relief is too slow, it is likely to lead to a "comeback" of consultations.

Two, according to the first stage trade agreement between China and the United States, the range of Chinese imports of us products did not mention cotton. Therefore, some institutions and traders have to judge that there is a requirement and the expected quantity is also limited. On the one hand, China's domestic supply of cotton is relatively adequate, and the US cotton is not a scarce commodity; on the other hand, the competitiveness of American cotton is not strong enough to superimpose the decline of cotton quality in Dezhou in 2019/20, and the attraction for Chinese textile enterprises needs to be observed. In addition, if marketization is still adopted, it will have little effect on ICE and Zhengzhou.

Three, the global economic situation will not be changed greatly due to the progress of Sino US trade consultation. It will take time for cotton consumption to hit bottom, stabilize and recover. China and the United States trade negotiations at a time when the twists and turns, while the United States and the second major economies of the European Union opened fire, will export to the EU part of the United States to levy tariffs on goods; plus global geopolitical warfare, war risk is relatively large; the US retail sales growth in November for the first time in 7 months since the negative growth and the hot water of the European Union, so ICE rebound at any time encountered "high bar".