The First Phase Of Sino US Economic And Trade Agreement Fell To 300 Billion. How Does The Tariff Reduction Affect The Cotton Market?

China and the United States signed the first stage economic and trade agreement covering cotton.

The signing ceremony of the first stage economic and trade agreement between China and the United States was held in the eastern chamber of the White House on the morning of January 15th, local time, Xinhua reported. Liu He, member of the Political Bureau of the CPC Central Committee, vice premier of the State Council and Chinese leader of the Sino US comprehensive economic dialogue, signed the text of the agreement with President Trump. Liu He said: to reach the first stage economic and trade agreement is beneficial to China, to the United States and to the whole world, and the door of China's opening up will be bigger and bigger.

This morning, the website of the Ministry of Finance published the original Chinese and English versions of the agreement. The text includes 8 parts: intellectual property rights, technology transfer, food and agricultural products trade, financial services, macroeconomic policies, exchange rate issues and transparency, expanding trade, bilateral assessment and dispute settlement, and final provisions.

According to CITIC futures, the content of agricultural products involved in the agreement mainly includes the following points:

1. China has pledged to purchase more than $12 billion 500 million and $19 billion 500 million of agricultural products in 2020 and 2021 in 2017 and 32 billion dollars in two years. The market generally believed that the base in 2017 was US $24 billion.

2. China's agricultural products include oilseeds, meat, Cereals, cotton, seafood and other agricultural products, and other agricultural products contain ethanol, DDGS, dairy products, processed foods and so on.

3. China simplifies the import audit process of feed additives (including DDGS), but continues to have the right to examine the import safety supervision system of feed additives in the United States, without referring to the "double reverse" measures of DDGS.

4. China ensures that the import tariff quotas for wheat, rice and corn will be allocated in a timely manner before January 1st of each year. The quota will not be allocated in October 1st or October 1st.

5. China and the United States promote the growth of agricultural biotechnology products based on a scientific and risk regulatory framework and an effective licensing process.

6. standardizes the inspection and quarantine procedures and rules for import and export of meat, dairy products and aquatic products in China and the United States.

300 billion tariff reduction

The office of the United States Trade Representative (USTR) issued a notice on January 15, 2020, deciding that since February 14, 2020 at 12:01 a.m. Eastern time, that is, Beijing time from February 15th 01:01, the US 300 billion 4A list tariff has been reduced from 15% to 7.5%.

Statistics on the impact of the US tax increase on China's textile and garment industry are as follows:

In 2018, China's textile and clothing exports amounted to 266 billion US dollars, and China exported 45 billion 800 million US dollars to us textiles and clothing, accounting for 17.3%. The biggest impact on China's textile and clothing exports to the United States is the $120 billion commodity added since September, accounting for about 73% of the total volume.

What is the impact on the cotton market?

[CITIC futures]: At present, the domestic cotton market is facing the fact that demand is getting warmer, and the gap between production and marketing still exists. In this context, rebuilding cotton reserves is of great significance. The United States as the main cotton producer, from the end inventory perspective, the maximum export volume of cotton can reach 1 million tons. In the absence of additional import quotas, it is in the interest of both countries to purchase stocks from the US cotton for reconstruction. If additional 500 thousand tons of US cotton are purchased, the value of the commodity will be estimated at around us $1 billion. Digestion part of the $16 billion commitment to agricultural products procurement, while easing the pressure on domestic supply gap. In addition, the only path for future cotton market development is the rise of internal and external resonance, and the domestic cotton market is hard to get out of the independent market. If additional cotton is purchased, it will facilitate the inventory of international cotton market, boost international cotton prices and drive domestic cotton prices up. But it is worth noting that the CF market started buying expectations two weeks ago, and the biggest drop in January was more than 300 points in 14 days, and the number of frequent departure was too frequent.

[Donghai futures Wang Qiyao]: After the signing of the Sino US agreement, the domestic and foreign cotton price performance is a big surprise. The US cotton first rose and then fell, and Zheng cotton began to reduce its holdings. According to the US cotton import volume, according to the agreement, "the amount of purchase and import from the United States in the 2020 calendar year should be no less than US $12 billion 500 million in the calendar year of 2017, and it is no less than US $12 billion 500 million in the year of the year 2017, and it is no less than 19 billion 500 million US dollars higher than the benchmark in 2017". It is speculated that in 2017, China imported US agricultural products about US $23 billion 690 million, of which US cotton accounted for 4.1%, about 980 million US dollars, and the import volume was 506 thousand tons. If the procurement structure remained unchanged and the purchase amount could be completed, the import volume of US cotton in 2020 was expected to be 80-90 million tons. Considering that Australia's cotton production has dropped to about 70 thousand tons this year because of the fire, if the amount of 250 thousand tons of cotton imported into Australia is supplemented by imports of American cotton, China will be able to complete the import volume of US $80-90 tons of cotton and not much pressure.

In the agreement, China adheres to the principle of "market principle", that is to say, in the case of the right price of American cotton and the permitted import profit, our Congress began importing American cotton, but the US side expressed more strongly about the purchase amount, and hoped that the Chinese side would strive for an additional $5 billion. Since the details of the procurement have not yet been released, the market has divergent views. Under the expectation of importing US $80-90 tons, if US cotton can be used as a supplement to national cotton reserves, it will have less impact on China's domestic market and effectively guide the market to go to the warehouse process. At the same time, the good export situation of US cotton can drive the uplink of international cotton prices, thus forming an internal and external linkage, and opening up the upper space.

However, the crux of the difficulty that cotton market hovers is difficult to break is still in demand. "The tariff of 15% dollars which was imposed on US $120 billion from September 1, 2019 has been reduced to 7.5%", which is favorable to some downstream exports. In 2018, the US imported Chinese textiles at around us $45 billion 800 million, covering 70% of the 120 billion US dollar merchandise. However, we can see that although the tariff has dropped, there is still 7.5% of the tariff. This tariff includes "other tariffs will remain unchanged" and so on. Again, if the United States only opens the upstream export to win the votes of farmers, if the lower reaches still do not relax or relax, it will cause harm to the profit distribution of the industrial chain in China, and make the downstream difficult to continue. Once again, once the domestic cotton price is too high, the Southeast Asian low price cotton yarn will pour into the domestic market, which will further produce negative feedback and return to cotton price. Therefore, as long as the downstream space does not open the space above the cotton price, it is difficult to open the space.

Judging from the disk, the differences between industry and capital still exist. In the face of the sharp rise in cotton prices, the price increase of cotton mills is not as good as cotton prices, and profits are squeezed. With the coming of the Spring Festival, the downstream stage has gradually entered the holiday stage, and the demand has obviously weakened, so the purchase of cotton mills is cautious. Although there are some funds left in the past two days, the attitude of the industry is still firm and has not yet been reversed. Zheng cotton has obvious pressure near the 14500 yuan / ton, and has been looking for support at 14000 yuan / ton after the fall. In view of this, the industry is still rational and prudent in the face of the early boom of Zheng cotton. After all, the complicated and changeable international situation and the expectation of spring orders still remain at the stage of "imagination", and the reality is still 1 million 500 thousand tons of daily warehouse receipts and the pattern of oversupply.

As for the recent years, due to the high price of cotton futures in the near future, the existence of selling sentiment and spot price transactions made it not attractive for the national cotton store to enter the price, and there was a continuous turnover for many days. That is to say, the supply pressure of the market did not improve because of the development of the national stock market. Therefore, the market will pay more attention to whether the spring orders are on schedule, and the market divergence is also concentrated here. It is estimated that with the reopening of downstream industries, cotton prices will fluctuate considerably with the volume of orders after the start of the year. Once the order is less than expected and meet the fundamentals of oversupply, cotton prices will face a risk of falling down. Of course, if the order improves as scheduled, then the inventory will be arranged orderly. At the same time, the second stage negotiations between the two countries, the process of tariff cancellation and whether Trump can be reelected in the US election is still the focus of long-term concern. The rise in cotton prices needs new stories to promote. (source Xinhua news agency, CFC agricultural products research, Hedge Research and investment, agricultural products futures network)