A New Round Of Interest Rate Hikes By The Federal Reserve Is Expected To Continue

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According to the September cotton supply and demand report released by USDA, the US cotton production in 2022 / 23 will increase by 274000 tons to 3.301 million tons, an increase of 10%; Inventory at the end of the period increased by 196000 tons to 588000 tons, an increase of 50%; The inventory consumption ratio of American cotton reached 18.1%, an increase of 5.5 percentage points.

In addition, in late September, the US Federal Reserve continued to raise interest rates. As a result, the market industry's expectations of consumption in the European and American markets declined. This year's cumulative increase in the exchange rate of the US dollar against other major currencies reached about 19%, the largest annual increase since 1981. At the same time, the stronger US dollar means that American cotton is more expensive for buyers holding other currencies. American cotton exports account for more than 80% of its output, which makes the US cotton relying on export consumption suffer more obvious impact. Under the influence of multiple negative factors, such as the increase of output, the decrease of demand and the rise of inventory consumption ratio, the spot price of foreign cotton continued to decline. According to monitoring, as of September 27, the price of foreign cotton was 17816 yuan / ton (calculated by 1% tariff), with a cumulative decrease of 18.56% in the month.

With the arrival of the "golden nine" peak season, the domestic cotton market demand has improved, textile enterprises speed up the removal of cotton yarn inventory, and the enterprise startup load has steadily rebounded. According to monitoring, as of September 27, the start-up load of Shandong cotton textile enterprises in the main marketing area has risen to 54%, an increase of 8 percentage points compared with the beginning of the month; The average inventory of cotton yarn of spinning enterprises dropped to 45 days, 11 days lower than that at the beginning of the month. With the improvement of production and sales in the downstream market, the enthusiasm of textile enterprises to inquire and purchase raw cotton increased, and cotton consumption increased slowly.

According to the survey, some large and medium-sized trade enterprises predict that the cotton sales volume in September will be close to the sum of the sales volume of the previous two months, and the supply of cotton warehouses in some areas of the mainland is even in short supply. Therefore, domestic cotton prices declined under the pressure of oversupply in September, but the improvement of demand had a certain inhibitory effect on the decline of cotton prices. As of September 27, the domestic price of 3128b cotton was 15439 yuan / ton, with a cumulative decrease of 1.61% in the month and a decrease of 1.42% month on month

October will be the peak period of domestic new cotton centralized listing, and market participants have low expectations on the price of seed cotton in the new season. According to the monitoring, since late September, the selling price of machine picked seed cotton in Xinjiang has mostly been 5.1-5.5 yuan / kg, equivalent to the cost of lint 11000-13000 yuan / ton, lower than the spot price of 3000-4000 yuan / ton. Therefore, if measured by this processing cost, the centralized listing of lint in October will drag down the spot price of the market.

In addition, according to the survey, the high yield of new cotton is expected to be generally high this year, and the preliminary estimate is that the output of this year may increase by 300000-500000 tons. With the centralized harvest in October, the negative effect of increasing production at the supply side will gradually become prominent, and the domestic cotton price will face more pressure, while the high abandonment rate of American cotton will support the foreign cotton price.

It is believed that domestic cotton prices may continue to fall and foreign cotton prices will stop falling in October, so the difference between domestic and foreign cotton prices has the probability of expanding again. Even if the price gap is no longer expanding, based on the current domestic and foreign cotton market fundamentals, it is expected that the domestic and foreign cotton price gap will end in a short period of time.

To sum up, the new round of interest rate hikes by the Federal Reserve has been implemented, and market participants' expectations of the economic downturn in Europe and the United States have been strengthened, and the consumption of foreign cotton will decline accordingly, which has exerted obvious pressure on the price of foreign cotton market. The domestic market relies on the support of "gold, silver and ten". The cotton demand is slightly improved, which can relieve the pressure brought by the phased loose supply. The difference between the strong external market and the weak domestic market is converging, but the upside down situation may continue.