Good Relay Relay Cotton Trend Or Maintain Strong In The Future

Sino US economic and trade negotiations have made significant achievements, and the cotton market has been favorable from both ends of supply and demand. At present, confidence in the cotton market has gradually resumed, and the stability mechanism of the national cotton store and the expectation of future demand have been superimposed. The balance sheet of the weak cotton market has been repaired, and cotton is expected to remain strong in the future.

Economic and trade agreement is expected to form support.

In December 13th, China and the United States announced that they had reached agreement on the first stage economic and trade agreement. The two sides will stop the tariff imposed on the preparatory duties and gradually reduce the tariff already imposed. China will expand its purchase of agricultural products. I believe that cotton will be one of the main agricultural products to increase purchasing power.

A major breakthrough in Sino US economic and trade negotiations will benefit the cotton market from two aspects of supply and demand. Supply side, the future China is expected to directly purchase the United States cotton replenish National Reserve, and directly reduce the supply of global cotton. Demand side, the easing of Sino US economic and trade relations will directly benefit the export of domestic textile and clothing. Meanwhile, the easing of Sino US trade frictions will benefit the global economic growth and enhance global cotton consumption.

However, the rise in domestic and foreign cotton prices has partly reflected the expectations of the market for Sino US economic and trade negotiations. Although the futures market has the tradition of "buying expectations and selling facts", the impact of Sino US trade negotiations on the cotton spot market has not been reflected. In the coming months, the profit effect of the event will gradually increase the spot price.

The stabilizing mechanism for the entry of national cotton stores is playing a role.

Since December 2nd, the State Reserve has made 500 thousand tons of Xinjiang cotton into the market by downward bidding. This year's reserve cotton entry mechanism is a stable mechanism compared with the past purchasing and storage mechanism. It will not actively push up cotton prices, but if irrational futures market falls, the round up mechanism will start to balance the market by turning round, so that futures prices will return to the spot price.

Judging from the closing situation of the cotton mills in the past two weeks, the mechanism has played a stabilizing role in cotton prices. As of December 13th, Xinjiang cotton entered a total of 70 thousand tons of registered imports and accumulated a total turnover of 32880 tons, of which 2560 tons were accumulated in the Xinjiang warehouse, and 30320 tons in the mainland warehouse. The highest transaction price was 13319 yuan / ton, and the lowest transaction price was 12879 yuan / ton. At the beginning of the year, market confidence was pessimistic, futures prices fell rapidly, and the turnover rate of cotton reserves reached over 90%. With the gradual rebound of futures prices, the turnover rate decreased significantly.

As the reserve cotton rotation policy will continue until the end of March next year, under the guidance of this mechanism, the fluctuation of current base in the next few months will be significantly reduced.

The surplus supply and demand balance has changed markedly.

At the beginning of 2019/2020, the global cotton supply and demand balance sheet was not optimistic, the output increased sharply, and demand continued to decline. According to USDA, the annual oversupply is expected to exceed 700 thousand tons, and the surplus has dropped to less than 200 thousand tons in the near future due to less than expected output. If China decides to import US cotton directly to replenish its Treasury, the supply of the global market will improve significantly this year.

Domestically, although the price trend is weaker than the international market, the real fundamentals are markedly better than before. Output is expected to be unchanged from last year, and the net volume of state reserves has been reduced by at least 1 million tons compared with last year. Because of the unreasonable cotton price difference, the import cotton will decrease significantly this year. In terms of initial inventory, the new year increased by 600 thousand tons over the previous year. Assuming that demand remains low for the previous year, the end of the new year's inventory is expected to decrease by nearly 1 million tons year-on-year, at a low level in recent years.

To sum up, at present, Sino US trade negotiations have made significant progress, and there are two positive aspects of supply and demand for cotton. The round entry policy of national cotton reserves will continue to stabilize domestic cotton prices in March next year, and the balance of supply and demand in the international and domestic markets has also improved significantly in recent months. Under the influence of many factors, cotton prices are expected to go out of the weak and continue to strengthen.