Before The Spring Festival, Cotton Prices Are Limited. Zheng Cotton Or Around 14000 Yuan / Ton Concussion.

At present, the low inventory of spinning enterprises is conducive to replenishment, but the immediate profit is still negative, and the price of cotton yarn is not strong enough. The sustainability of cotton growth depends on the repair of downstream profits.

The picture shows the cotton index daily line.

At the end of December 2019, the 2005 cotton contract in Zhengzhou cotton broke through the previous high point of 13685 yuan / ton, and the highest rebounded to 14270 yuan / ton, which is now down to 14000 yuan / ton. We believe that the rebound property of Zheng cotton belongs to the restorative increase under the margin of supply and demand. In the background of the uncertain quantity of China's purchase of US cotton, we should consider the time limit for the downstream replenishment before the Spring Festival and the weak profit transmission. It is estimated that the Zhengzhou cotton upward repair space will be limited before the Spring Festival, and the probability of oscillation at the high level of 14000 yuan / ton will be larger. If the demand for the replenishment of the downstream peak season is improved, then the focus of Zheng cotton futures is expected to rise to 14800 to 15000 yuan / ton. If China purchases more than 500 thousand tons of cotton in the latter part of the world, it will be mainly driven by wheels.

Followed by the United States and cotton in the future

Zheng cotton futures market is difficult to get out of the independent market, mainly following the trend of US cotton futures, and the rise of US cotton futures depends on the size of China's purchases. If China's procurement volume is about 500 thousand tons, then the US cotton futures 70 cents / pound (corresponding to China's sliding tariff rate of 14800 yuan / ton) has limited space, and if the procurement exceeds 500 thousand tons, then there will be some room for us cotton futures to rise.

The difference between inside and outside cotton price has certain repair space. Statistics show that cotton production in China is between 5 million 500 thousand and 5 million 600 thousand tons in 2019/2020. 2019/2020 is expected to consume 1 million 200 thousand to 1 million 500 thousand tons of social inventories in the year of 2019/2020. At the beginning of this year, the social inventory reached a high level of 3 million 200 thousand tons, which was 690 thousand tons, 1 million 490 thousand tons and 1 million 980 thousand tons higher than that of 2018/2019, 2017/2018 and 2016/2017 in the same period. It is estimated that the net output will be about 600 thousand to 800 thousand tons in 2019. China has a larger probability of achieving the total round of 800 thousand to 1 million 500 thousand tons at home and abroad in 2020. The total output is expected to be between 800 thousand and 1 million tons in 2020. Considering the downturn in the volume of cotton in Brazil in December 2019, it is difficult to reach the target of 500 thousand tons in December 2, 2019 to March 31, 2020, and the domestic turn in volume or below 200 thousand tons. Judging from the import situation, China's import quota is fixed at 894 thousand tons. Whether the quota is granted or not, the specific amount is determined by the national development and Reform Commission. In 2018 and 2019, the import quota of sliding tax was 800 thousand tons.

In 2019/2020, China does not consider the normal supply of cotton that is quasi tax quota, which is about 8 million 200 thousand to 8 million 700 thousand tons. China's cotton consumption is expected to be between 8 million 200 thousand and 8 million 400 thousand tons in 2019/2020, and the spot price of domestic cotton should be reasonable between 1% tariff import prices and sliding tariff rates. 1% of the tariff import profits need to be repaired as positive, and the import profits of sliding tariff rate quota will not continue to appear. As of January 2nd, China's cotton tariff 1% import profit of -13 yuan / ton, sliding tariff quota import profit of -1102 yuan / ton.

The first stage economic and trade agreement between China and the United States shows that China's agricultural products purchase does not include cotton, but the market has expectations. If the proportion is corresponding to cotton, China can purchase 460 thousand to 570 thousand tons more than 2018/2019 year, and the market expects to purchase 500 thousand to 800 thousand tons. If other countries import cotton and cotton remain unchanged (harsh conditions) over the same period of last year, China's imports of more than 500 thousand tons will consume part of the increase in US cotton exports and inventories compared with the previous year. Considering that the US cotton contract in Turkey, Pakistan and India is growing at a relatively high rate over the same period, it is reasonable to expect that at the end of this year, when other countries purchase at least 200 thousand tons, the US cotton end inventory will be near 850 thousand tons (corresponding to 70 to 75 cents / pound of US cotton futures). If China purchases more than 500 thousand tons, it will exceed expectations, and the US cotton futures still have upward space, otherwise the space above the US cotton 70 cents / pound will be limited.

Spinning enterprises have replenishment power

In December 13, 2019, both sides declared that they had reached agreement on the text of the first stage economic and trade agreement. In terms of tariffs, the United States agreed to abolish tariffs on the remaining $160 billion in December 15th, while the tariff rate on commodities that had been added in September (about US $120 billion) fell from 15% to 7.5%. The consumption of cotton textile clothing related to the United States is mainly included in the US tax increase list of September. It is understood that cotton orders have improved signs. There is a certain return of foreign orders in weaving enterprises. At present, orders for large factories can be maintained to 3 to April in 2020, and orders for small factories are still poor.

After Zheng cotton futures strengthened, cotton spot quotation resources actually increased by 300 - 350 yuan / ton, and spinning enterprises are still buying losses, and the price of large textile enterprises has risen by 200 - 500 yuan / ton (the actual turnover has increased by 200 yuan / ton). At present, the low inventory of spinning enterprises is conducive to replenishment, but immediate profits are still negative. Cotton yarn prices are not up enough. The sustainability of cotton growth depends on the restoration of downstream profits.

At present, the raw material inventory of textile enterprises and weaving enterprises is at a low level. If the downstream is replenishment, the cotton price is expected to rise further. But at the time of the Spring Festival holiday, some small factories have been on holiday. The amount of downstream replenishment is limited by time, and the observation window of downstream actual demand is moved to the post Spring Festival.