Prospect Of Cotton Market In Post Epidemic Period

In April 8th, the lifting of the Wuhan seal marked the victory of domestic anti epidemic. From the perspective of Europe and the United States, the epidemic turning point of foreign countries was also not far away. Moreover, the research and development of human clinical vaccines in China and the United States were carried out simultaneously. In April 9th, China has entered the two phase of 500 people's clinical trials. The author believes that the market's closing of the epidemic is already at an end.

In order to cope with the epidemic, countries have entered the isolation state, and cotton textile consumption is facing a revaluation. From the domestic market, in 1-3 months, the total export volume of textiles and clothing in China was 45 billion 265 million US dollars, down 17.70% from the same period last year. Retail sales of 110 billion 300 million yuan, down 33.20% year-on-year. Among them, the export data of textile products in March decreased by 1-2 months, because of the reason of trade gap, it is expected that textile exports will still be more stressed in 4-5 months. But the previous fall is also sufficient for this transaction, even if there are bad export data, it is difficult to cause further price declines. In the future, domestic demand will gradually recover, but exports will continue to be under pressure. From December 2, 2019 to March 31, 2020, the total sum of cotton imports reached 372 thousand tons, with a turnover rate of 47.3%, with an average price of 13435 yuan / ton, which has hedged the decline of some consumption. Cotton sales have also gone through the worst period. Sales progress has begun to slow up, and warehouse receipt pressure has dropped seasonally. According to the national cotton market monitoring system, as of April 10th, the national cotton sales progress was 66.1%, +3.8% year-on-year. As shown in the chart, the export orders have been greatly reduced by the impact of foreign epidemic situation, and the finished product inventory of the downstream cotton mill has accumulated, and the replenishment of raw materials is very low.

Fig. 1 cotton cotton yarn rear track inventory

Source: COFCO futures TTEB Wind

Based on the above data, the author reduced domestic cotton consumption in 2019/20 to 1 million 100 thousand tons to 7 million 100 thousand tons, and the global cotton consumption fell 3 million 510 thousand tons to 22 million 660 thousand tons. By balance table analogy, the end of 2019/20 inventory level is less than 2014/15 and 2015/16, when the lowest point of US cotton is 54.4 cents / pound. However, the US cotton index is at a low price of 49.04 cents per pound during the epidemic. The lowest price of the Zheng cotton index is 10160 yuan / ton, indicating that the market's pessimistic expectations have exceeded 2014/15. The market thinks that the end of cotton inventory may be higher than 24 million 330 thousand tons. In this way, the global consumption of 2019/20 will drop from 6 million 590 thousand tons to 19 million 600 thousand tons, which is obviously a crazy number. The market is extremely pessimistic and overcorrected. It can be said that after the double strike of Sino US trade frictions and the new crown pneumonia epidemic, the logic of the shrinking cotton consumption has been deducted to the extreme, and it will be very difficult to get worse in the future. At present, the absolute price of cotton has fallen to the lowest level since the listing, and the valuation of commodities is also the lowest since listing. For asset allocation, the margin of safety is very high.

Fig. 2 cotton supply and demand balance under the new crown flu pressure test

Source: USDA COFCO futures

Looking ahead, counter cyclical regulation, easing trade between China and the United States and the new annual production reduction are the three driving forces to drive the bottom up of prices. In order to hedge the impact of the epidemic, the global government and central bank have stepped up counter cyclical regulation. The G20 announced a joint $5 trillion stimulus plan. Take the Fed as an example, after the outbreak, the cumulative interest rate cut 150 basis points to 0-0.25%, and launched an unlimited amount of QE, the joint financial department launched a $2 trillion stimulus plan. Commodities are denominated in currencies, and global money supply is bound to push up asset prices, which will stimulate cotton prices. At present, Sino US trade is in the first stage of the implementation of the agreement. The main trend is phased easing. In March 8th, the United States was exempt from over 100 kinds of medical equipment in China. The epidemic is the enemy of all mankind. Strong pressure may strengthen the process of trade easing between China and the United States and boost the export of US cotton. With the gradual landing of the first stage economic and trade agreement between China and the United States, imports of agricultural products from the United States in the first quarter increased by 35 billion 560 million yuan, an increase of 1.1 times. Among them, 124 thousand tons of imported cotton, an increase of 43.5%, worth 1 billion 590 million yuan, an increase of 17%. The average cash plantation cost of US cotton is about 54 cents / pound, and the total planting cost is about 69 cents / pound. At present, cotton price has fallen below the cost of US cotton planting. At the same time, the price of substitutes for corn and cotton in the past 5 years is the highest, and the actual planting area of cotton next year will drop more than market expectations. According to USDA, in the first two weeks of March, the US cotton prices in December were (60, 65.8) cents / pounds, and the new year's acreage was 13 million 703 thousand acres, down 0.3% from the same period last year. Now 55 cents / pound, the actual area may be lower. Prior to the desert locusts, 80% of cotton and 5% of India's cotton area have been attacked by Pakistan. The output of cotton in India and Pakistan accounts for about 30% of the world's total. The FAO is expected to have a more serious locust disaster in June. On the 10 day, the last 20 times locust disaster struck again in East Africa. In the context of the intensification of the epidemic in India, if the threat of locusts disaster is hard to organize in June, the output of India and Pakistan will face serious threat. The next year's global cotton production reduction is expected to be strengthened, which may stimulate the price rise in the post market.

To sum up, the new crown outbreak hit the world's cotton consumption, China's consumption dropped 1 million 100 thousand tons, the global cut 3 million 510 thousand tons, 54 cents / pound cotton price has Price In consumption collapsed, and the epidemic also led to counter cyclical regulation, easing trade between China and the United States, and strengthening production in the new year. It is expected that cotton will rebound and rebound in the future, triggering point of inflection, locusts and plague of India and Pakistan, planting and weather in India.