Analysis Of Cotton Price In The Low Historical Price Range In The Recent Market

A new round of decline in cotton prices, US cotton is close to 65 cents/pound, and Zheng cotton is close to 13000 yuan/ton. All are measured from the industrial level, and are at the historical low price range level.

This round of decline occurred under the situation that the weather was basically safe, the supply pressure was gradually clear, and the demand was difficult to improve. However, macro trading and post point closing are the core factors that have been strengthened at the current stage. Therefore, the trigger for the rebound is probably the weakening of macro negative and the digestion of closing pressure. If the demand recovers at a certain stage, it will play a role of supporting the rebound or weakening the negative under the premise of macro orientation. However, until the 24/25 new cotton season comes into the market, the supply pressure at the industrial end still needs to be digested.

　　 1、 Cotton price trend

The main contract of American cotton fell after reaching a high of 103.8 cents/pound at the end of February, and recently hit a low of 66.55. In this downward trend, the decline from high to low was 35.89%. This low point is the low point since October 2020.

Zheng Mian's main contract saw a double peak of 16500 yuan/ton at the end of February and the first ten days of April, with a recent minimum of 13250 yuan/ton, a drop of 19.7% in this round. The recent low point is the low point since December 2022, and also close to the position of early October 2020 (followed by a round of rising until October 2021).

　 2、 Operation logic and brief analysis

1. The recent decline of American cotton is driven by the dual forces of the pressure on production increase and the macro negative in the new year.

In terms of supply and demand fundamentals, the production increase of American cotton in 24/25 was gradually established with the cooperation of area increase and weather preference. However, its demand side is facing challenges. On the one hand, the shipment progress of 23/24 is slow, and on the other hand, the sales progress of new cotton is low. Due to the obvious increase in inventory sales ratio, the price of American cotton based on this data fitting was once as low as 62 cents. In August, the supply and demand report reduced the planting area and increased the abandoned farming rate. On this basis, the output was significantly reduced by 410000 tons to 3.29 million tons. After the simultaneous reduction of consumption, its inventory sales ratio decreased by 3.2 percentage points month on month to 32.37%. According to the latest data, the fitting price of American cotton is 67 cents, still at a low price level.

In terms of macro factors, the rhythm of US dollar interest rate increase and reduction, replenishment cycle, inflation, financial market environment and other macro factors are the key drivers of cotton price trend. The recent decline seems to be the supply of trading fundamentals. In fact, it is more the power of macro negative. Speculative short is also the main trading body of the market price. If the macro bad news stops for a while, it will be reflected in the cotton price, which may stabilize or even rebound. The recent macro negative is dealing with the expectation of the US recession, but after all, it is only dealing with the expectation, so this trading sentiment will also recur. However, the risk of recession and the stimulus after interest rate reduction are still the inevitable trading themes in the future. From the perspective of time, the negative effects of the former still need attention.

2. Zheng Mian's weakness lies in the continuous demand pressure and price pressure after the market

Apparent demand for domestic cotton has been under pressure. The pressure on the demand side comes from the lack of bright spots in the terminal demand on the one hand, and from the pressure to reduce the intermediate inventory after it reaches a high level, mainly cotton yarn (20235, - 80.00, -0.39%)。 The data such as the continuous decline of downstream startup and the year-on-year increase of cotton industrial and commercial inventory provide additional evidence of the weak demand.

The spot price is mainly from the ginning factory selling unpriced cotton. As time approaches, there is a demand for settlement. And once the price falls, under the pressure of margin replenishment, it is easy to have concentrated cashing power. Therefore, under the guidance of the macro negative and the decline of American cotton, Zheng Mian's pressure also followed. However, this factor has also been realized in a wave of decline and position reduction in recent months.

　 3、 The supply and demand pattern is still empty, and the chain comparison strength is weakened

The latest monthly supply and demand report released in August showed that the global cotton output in 24/25 was 25.61 million tons, with a month on month decrease of 560000 tons, consumption of 25.3 million tons and a month on month decrease of 210000 tons. It is still a pattern of production exceeding demand, and the demand increment is still high compared with the GDP growth in the same period.

However, from the perspective of month on month adjustment, the report significantly reduced the output of American cotton. After adjusting China's historical data, the final ending inventory was reduced by 1.09 million tons to 16.9 million tons month on month, and the latest inventory sales ratio was adjusted to 66.78%, down from the previous year.

　 4、 The demand improves seasonally, but the quality is average

The downstream entered the seasonal improvement time, and the orders picked up seasonally, but the overall demand did not pick up significantly, which was reflected in the start-up of the downstream, and the fabric factory's start-up slightly warmed up, but the yarn factory's start-up was still declining. It is expected that the seasonal recovery will continue in the later period, which may, to some extent, have a rebound drive to the prices that have fallen to a low level. However, the overall quality may be difficult to be optimistic, the support for cotton prices is also limited, and market research also shows that the confidence of the downstream is generally insufficient. The lack of confidence leads to limited willingness to stock up again. Even if there is the idea of speculating on the basis of low prices, it is based on the fact that the price ratio continues to fall.

　　 5、 Panel trading factors

1. On the position of American cotton, speculative vacancy is at a high level, but at the same time, the quantity of unpriced purchase contracts is on the high side.

According to the latest fund position report released by the CFTC, as of August 6, there were - 35031 net positions of non-commercial futures and options in the ICE cotton futures market, 3904 fewer than the previous week; Only the net excess of non commercial positions in futures was - 41908, a decrease of 4567; There were 62918 more commodity index funds, a decrease of 2669. As the power of speculative short is concentrated, its position reduction power is expected to strengthen the rebound after the emergence of rebound drive. However, on the unpriced contract in December, the unpriced sales volume was at a historical low level, but the unpriced purchase contract volume was at a historical high level, which means that the rebounding industrial selling pressure also exists.

2. Domestic position falls to a low level

The total position of cotton in the pan reached more than 1.2 million at the peak, but it has dropped to more than 600000 at present, half of the peak. It can be seen that after the cotton fell all the way, the current contradiction is not prominent enough, and the capital heat has declined. On the other hand, the strength of short positions is still greater than that of long positions. In the later period, if it is not the chance of a sharp fall to form a V-shaped reversal, then a good performance may need to see the overall position increase.

　　 6、 Conclusion

The overall cotton fundamentals are empty, mainly based on the large supply and demand pattern and the overall consumption weakness. However, after the price falls step by step, it will face the stage rebound caused by valuation resistance. In the early stage, the price of American cotton met the stage support at 70 cents, but it has broken again since then, especially under the macro pressure. Previously, domestic support based on quota policy and downstream seasonal improvement also experienced support rebound. However, the overall decline of American cotton and commodities has also increased the pressure on the domestic market, so the domestic cotton price is also weak, and then the pressure of price point comes one after another, strengthening the downward trend. The short-term focus on Meimian 65/66 and domestic 13000 front-line companies is temporarily lagging behind to stabilize based on short selling. However, both the macro risks and the supply pressure after the listing of new cotton are still faced by the cotton market in the later period. In the later stage, we will continue to evaluate the price and rhythm based on the macro, commodity trend and downstream dynamics.