The Federal Reserve'S Interest Rate Hike Came To Fruition, And The Market Ended Higher

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The Federal Reserve announced that it would raise the target range of the federal funds rate by 25 basis points, in line with market expectations. The Federal Reserve has hinted that it may only raise interest rates once again this year. In the short term, the market is expected to reduce its volatility frequency without increasing risk events. At present, the interest rate increase of the Federal Reserve is negative, and the US cotton market has been fully released in advance, and the market has finally closed up.

The domestic cotton supply surplus has become a consensus, and the rising cotton price lacks more driving force. After failing to hit 15000 points at the beginning of the month, Zheng Mian futures fell in shock. After falling through several support levels in succession, the decline has finally stabilized in recent days. It is expected that the main contract of Zheng Mian will be settled around 14000 in the short term. The focus of the cotton market will turn to the fundamentals, and the attention of the planting area and downstream demand in the new year will increase. The focus of the cotton market will turn to the fundamentals, and the attention of the planting area and downstream demand in the new year will increase.

According to the current market estimates, the planting area of the United States in March may fall between 1050-11.97 million acres. Compared with last year, the fluctuation range is small. Previously, the USDA Outlook Forum estimated that the U.S. cotton planting area in 2023/24 would be 11.4 million acres. Relative to the area, the impact of per unit yield may be greater, because the yield of American cotton was reduced due to the large proportion of abandoned seeds in the weather. If the weather improves in the future and the proportion of abandoned seeds decreases, the total yield may increase.

The USDA Outlook Forum predicted that the cotton planting area in the United States in 23/24 will decline by 20.8% year-on-year to 10.9 million acres, because the competitiveness of cotton planting is lower than that of corn and soybeans. Follow up reports focus on the planting intention report released by USDA at the end of March. It is worth noting that the reduction of area does not mean the reduction of production. The USDA Outlook Forum has reduced the abandoned farmland rate by 27.6%, and identified the American cotton as an increase in production in the next year. Therefore, if the market hyped the decline of American cotton planting area in the second quarter, it may promote the rise of cotton prices, but the actual profit margin is limited.

After the cotton price fell sharply in 2022, the ratio of cotton to grain dropped significantly, and American farmers' planting intentions declined. The USDA Outlook Forum estimated that the U.S. cotton planting area in 2023/24 would be 11.4 million acres, more than 15% lower than the planting area of the previous year. Now some private institutions predict that the U.S. cotton planting area will decline significantly this year, possibly more than 20% lower than the same period last year.

The global cotton planting area is expected to be basically flat year-on-year, but the planting area of the United States and China in the new year is expected to decline year-on-year.

It is estimated that the cotton planting area in the United States will decrease by 15% - 20%. In 2022, the price of cotton will drop sharply, and the price of cotton will gradually decline compared with other crops. Influenced by La Nina weather, the United States will continue to suffer from high temperature and drought. The seed rejection rate will increase significantly, and cotton planting profits will be damaged. Cotton farmers also have some concerns about the climate conditions in 2023, which will affect their planting intentions. USDA had previously predicted that the cotton planting area in the United States would be 10.9 million acres in 2023, a year-on-year decrease of 21%; NCC had predicted that the cotton planting area would be 11.4 million acres, a year-on-year decrease of 17%.

In the domestic market, the decline of cotton planting area has basically become a foregone conclusion. In 2022, the cost of cotton planting will increase significantly, the income of cotton planting on land parcel will be almost zero or loss, the cotton subsidies in 2022 have not been fully distributed, and the target price of new cotton subsidies has not been determined, which will affect the willingness of cotton farmers to plant in the new year. In early March, a government document mentioned that it was necessary to guide the withdrawal of low-quality and inefficient cotton fields from planting corn, soybeans and other food crops, and the decline of planting area in 2023 was almost certain. Previously, the survey results of China Cotton Association showed that the intended cotton planting area in 2023 was 42119600 mu, down 3.7% year on year.