The Rapid Development Of Overseas Epidemic Caused The Market To Worry About The Suppression Of Cotton Prices.

Due to the rise in the number of confirmed cases in many countries and the escalation of the global epidemic, last night, the United States cotton fell more than 4% to over four months last night. Today, Zheng cotton has rebounded after opening low, but then fell back and dropped shortly after the opening of the afternoon. The main reason is that the rapid spread of the overseas epidemic caused the market's worries about the global economy, the worries about cotton demand, and the cotton prices plummeted by emotion.

For cotton, its industrial chain, terminal textile and clothing consumption can be divided into two parts, domestic demand and foreign trade. In 2019, the retail sales of clothing, shoes and hats and needle textiles in China were 1 trillion and 351 billion 660 million yuan, while the total export volume of textiles and clothing was 271 billion 567 million dollars, so the proportion of exports was relatively large. Due to the impact of domestic epidemic, from the end of January to the middle of February, the sales of textiles and clothing lines were basically at a standstill, and there was a certain degree of obstruction due to logistics reasons. The production terminals were generally delayed. Although the current domestic epidemic situation is improving, the government has also introduced a series of policy measures to ensure production orders, but the seasonal demand of some of them is irreversible. And a certain degree of epidemic prevention measures may continue in the future, so it is estimated that the epidemic will probably affect cotton consumption in half a month to a month. The escalation of the current offshore epidemic will undoubtedly further increase the impact of the epidemic on cotton demand. Japan, South Korea and Italy, which are more serious in the current epidemic situation, are the major countries in the export of textiles and clothing in China. In the past two years, exports to the EU accounted for around 18%, roughly 8% of Japan's total, and roughly 3% of South Korea's total. The implementation of the epidemic prevention and control measures or the pressure of the global economy will have an impact on the export of our textile and clothing, and will also have an impact on the global cotton demand.

Therefore, judging from the latest cotton supply and demand situation, the cotton information network predicts that China's cotton output will be 5 million 630 thousand tons, 8 million tons and 1 million 700 thousand tons of imports in 2019/2020, so the gap will be 670 thousand tons. However, in view of the current epidemic situation, consumption may be further reduced, which means that the supply and demand adjustment time has been further extended, and the pressure on cotton supply to the market will be extended. Similarly, for the whole world, the US Department of agriculture has recently predicted that the global cotton production in 2020/2021 may be reduced by 2.3% to 25 million 800 thousand tons due to the decrease in cotton planting area, while consumption will rebound to 26 million 340 thousand tons, so the final inventory is expected to drop to 17 million 290 thousand tons. However, in view of the current epidemic situation, it is doubtful whether the demand will rebound, that is to say, the global cotton supply. Optimism may not be as good as expected. But then the northern hemisphere is about to enter the cotton growing season. The low cotton price will probably affect the enthusiasm of cotton growers and adjust the structure of supply and demand.

Therefore, the downward trend of cotton prices or emotional responses will ultimately depend on the extent of the impact of the epidemic on cotton demand. Despite the escalation of the global epidemic, but because of China's experience, and the awareness of the virus is also improving, if countries take appropriate preventive measures in time, the epidemic is still relatively controllable, and the impact will be relatively small. In addition, as domestic demand is gradually recovering, inventory is constantly being consumed and the rotation is continuing. Coupled with the possible hype of supply in the upcoming cotton growing season, it is estimated that short-term cotton will continue to be weak adjustment, and there is still a certain upward trend in the long term. Therefore, the early 5 to 9 counter sets can continue to hold. At present, CF2005 is 12180, CF2009 is 12625, 5 - 9 spreads are -445, while theoretical holding cost is about 560, 5 - 9 spreads may expand further. We should focus on the global epidemic situation, the recovery of downstream demand and the growth of new cotton seeding.