China'S Cotton Price Mechanism Of The Combination Of Futures And Cash Has Basically Formed

Recently, at the "2021 China International Cotton Conference" jointly sponsored by the China Cotton Association and the national cotton trading market, Wang Jianhong, deputy director of the agricultural materials and cotton hemp Bureau of the all China supply and Marketing Cooperative Association, and vice president and Secretary General of the China Cotton Association, said that in recent years, the domestic textile consumption market has undergone a subversive change driven by new technologies, Consumers have realized "all day shopping, Omni channel shopping and personalized shopping". In 2020, for the first time, online sales of clothing were greater than offline sales, and the retail sales of clothing consumer goods of Enterprises above the quota reached more than 800 billion yuan, an increase of 10.6 times over 2001. China's cotton financial attributes have been strengthened, and the price mechanism of internal and external linkage and combination of futures and cash has been basically formed.

　　 The financial attribute of cotton has been enhanced

Since China's entry into WTO, great changes have taken place in China's cotton industry. The main cotton producing areas are concentrated in Xinjiang, and the planting area of Xinjiang has accounted for 78.9% of the whole country. This year, the total domestic cotton production was stable, and the regional distribution was concentrated in Xinjiang, and the cotton planting area in the mainland continued to decline significantly. According to the statistics of China Cotton Association, the national total output was 5.924 million tons, up 0.3% year on year; Among them, Xinjiang cotton output was 5.244 million tons, an increase of 4.1% year-on-year, accounting for 88% of the total output; The output of the mainland was about 644000 tons, a year-on-year decrease of 22%.

Over the past 20 years, China has become the world's largest textile and clothing industry center and supply chain hub, and has a huge consumer market. In 2020, China's yarn output will reach 26.183 million tons and cloth output will reach 46.03 billion meters, which will increase by 244.2% and 58.7% respectively compared with 2001. At present, China's textile and clothing exports account for 34% of the world. In 2020, the total foreign trade volume of China's textile and clothing is 319.88 billion US dollars, 3.75 times higher than that in 2001. In the last 15 years, except for 2019, the annual consumption of cotton has basically remained at 8-10 million tons, ranking first in the world. According to customs statistics, in the first eight months of 2020, China's cotton imports totaled 2.711 million tons, up 88% year-on-year. In the first eight months of 2020 / 21, the United States accounted for 45%, Brazil 28%, and India 15%.

In terms of cotton market regulation, the national development and Reform Commission issued the notice on deepening the reform of price mechanism during the "14th five year plan" period. It is proposed in the document that we should improve the cotton target price policy, improve the risk sharing mechanism, reasonably adjust the cotton target price level, and continue to explore new sustainable cotton policies. From the perspective of cotton reserve policy, while maintaining the normalization and institutionalization of policy, the mechanism setting is more in line with the market law. In terms of quota management policy of imported cotton, the total quantity of distribution is loose. On the basis of 894000 tons of internal tariff quota, 700000 tons of cotton import sliding standard tax quota was issued in due time, all of which were non-state-owned trade quotas. By the end of December 2020, the sliding standard tax rate will be reduced to reduce the cotton cost of textile enterprises. As of June 16, the annual average price of China's cotton price index (3128b) was 14968 yuan / ton, up 19.2% year-on-year; The annual average price of the main contract of Zheng Mian futures was 14895 yuan / ton, with a year-on-year increase of 19.6%. At present, the domestic cotton supply and demand is basically balanced, and the market price is relatively stable. The amplitude of international cotton price is relatively large, and the difference between domestic and foreign cotton prices continues to fluctuate. Since September 2020, the maximum price difference between domestic and foreign cotton is 2311 yuan / ton, the minimum price difference is 378 yuan / ton, and the average price difference is 1306 yuan / ton. In recent years, the financial attribute of cotton has been enhanced, and the price system of internal and external linkage and combination of futures and cash has been basically formed. This year's cotton situation presents a stable policy, stable production, rising demand, increasing imports, cotton prices are relatively stable, and supply and demand are basically balanced.

　　 Futures price becomes the anchor of spot trading

In the process of increasing the concentration of cotton industry in recent ten years, enterprises that can effectively use financial derivatives such as futures have obvious competitive advantages.

It is understood that more than 90% of the current cotton spot trade is basis trading, which makes enterprises have trading opportunities in the rising and falling market, and also reduces the cost of cotton for textile enterprises. In the industrial change, Zhengzhou cotton futures hedging risk function, forward stock purchase and forward sales function, price discovery function, played a key role. At present, the implementation of basis trade has formed a trading mode in which cotton purchase and sales look at futures and cotton yarn purchase and sales look at futures, with higher efficiency and smoother price transmission. At the same time, the price discovery function of futures helps the cotton industry chain adjust production and demand, making the industrial chain development more benign. The hedging function of futures provides a platform for enterprises to hedge risks. Especially in the process of national cotton target price reform in 2014, cotton futures increased cotton sales channels for cotton processing enterprises, and provided an important reference for the government's sales price collection.

Since the cotton futures market in 2004, the number of warehouse receipts and trading scale have increased several times, and the use of futures tools by enterprises has experienced several stages. Wei gangmin, chairman of Henan TongZhou Cotton Industry Co., Ltd., introduced that at the beginning, they believed that the futures market and the spot market were the same, gambling. In the second stage, futures are regarded as a channel for purchasing and selling. In the third stage, they began to consider using the futures market for risk management and hedging the company's inventory. After 2016, basis trading has been gradually popularized. The company began to study how to use futures to promote new trading mode, promote procurement and sales, and increase the market share of enterprises. At present, the core of the research is the law of futures price fluctuation, based on which, combined with the situation of enterprises, the reasonable use of the futures market. At the same time, use cotton futures to drive the transformation and upgrading of small and medium-sized enterprises. On the one hand, through corporate public accounts, regular meetings and other ways to exchange views on the market. On the other hand, we should improve the cotton supply varieties, carry out hedging through cotton futures, and let the profits of hedging benefit small and medium-sized enterprises. We also work with customer companies to study new transaction mode, and strive to stabilize the purchase cost of customer enterprises.

Wang Jianhong said that in recent years, the annual consumption of cotton should be stable at 8-9 million tons, and the annual output of cotton should be stable at 5.5-6.5 million tons. The development of cotton industry is guided by high quality. At the same time, we should establish the brand image of Chinese cotton and realize the sustainable development of Chinese cotton.

(source: Farmers Daily)

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