Market Dynamics: There Is Little Hope For Cotton Rebound After The Impact Of Domestic And International Environment

After the earlier decline, the price difference between domestic and foreign cotton has narrowed significantly, which is conducive to stabilizing domestic cotton prices to a certain extent. In the medium and long term, based on the increasing pressure of global supply in 2024/2025, domestic demand in the subsequent peak season is generally, and the space for cotton rebound in the future is still limited.

Judging from the recent statement of the Federal Reserve, the probability of a sharp interest rate cut in September has increased, and the overall performance of commodities is relatively strong, boosted by the financial market. The US cotton index fell to 67 cents/pound at the lowest level in the early period, and the short-term decline momentum has weakened. Since the middle of August, the rainfall in Texas, the main producing area of American cotton, has continued to be relatively low, and the excellent rate of American cotton has dropped continuously. As of August 25, the excellent rate of American cotton in the 15 major cotton growing states was 40%, down 2 percentage points month on month, 7 percentage points higher than the level in the same period last year. The weather forecast shows that in addition to the western cotton region, the main cotton producing areas in the United States will receive some rain in early September, so we will continue to pay attention to the weather.

At present, American cotton has entered the boll opening stage, and the overall growth progress is relatively fast. On August 25, the cotton boll opening rate in the United States was 25%, 2 percentage points ahead of the same period last year and 2 percentage points ahead of the average in recent five years. Among them, the boll opening rate in Dezhou, the main cotton producing area, is 27%, 1 percentage point behind the same period last year and 1 percentage point behind the average progress in recent five years.

In addition, the USDA's August supply and demand report significantly reduced the annual output of American cotton in 2024/2025, which also reflects the negative impact of the subsequent weather to some extent in advance. Due to the large decrease in the expected US cotton output in August, it is expected that the adjustment of the US cotton output in the September supply and demand report of the US Department of Agriculture may be limited.

Brazil's output continued to increase in the new year. According to the latest forecast of Brazil National Commodity Company in August, Brazil's cotton output in 2023/2024 will be 3.644 million tons, slightly higher than that of last month, and 470000 tons more than that of 2022/2023, continuing the momentum of high yield. Brazil's exports also soared. In July, Brazil's cotton exports reached 167000 tons, an increase of 7000 tons month on month and 94400 tons year on year. This month's export volume was the highest in the same period in recent years. This year, the cumulative export of cotton reached 2.681 million tons, an increase of 85% year on year, which also surpassed the United States as the largest exporter.

Other major producing countries, such as Australia, also have high cotton production. The August supply and demand report of the US Department of Agriculture shows that Australia's cotton output in 2024/2025 is 1088600 tons, which is on the high side in recent years. India's cotton production is expected to decrease. Till now, the planting area is still low on a year-on-year basis. The US Department of Agriculture estimated India's cotton output in 2024/2025 to be 5.3342 million tons, 370000 tons less than the previous year.

Recently, Zheng Mian has continued to rebound slightly, and spot transactions are still average. Although the demand for cotton yarn has improved, the range is still limited. The market's expectation of the "golden nine and silver ten" peak season is general. Textile enterprises' cotton yarn inventory is at a high level, and the digestion of inventory needs sustained demand support. In addition, the domestic textile and clothing consumption in July was weak. The retail sales of clothing, shoes and hats, knitwear and textiles in July were 93.6 billion yuan, down 5.2% year on year and 24.3% month on month; From January to July, the accumulated retail sales were 803.3 billion yuan, up 0.5% year on year. Domestic textile and clothing consumption slowed down in July, and the market still lacks confidence in the subsequent consumption performance.

At present, the supply of cotton is still sufficient. As of the end of July, the commercial inventory of domestic cotton was 2.7782 million tons, an increase of 450700 tons year on year; By the end of July, the cumulative imports in 2023/2024 were 3.09 million tons, an increase of 1.84 million tons year on year.

To sum up, Zheng Mian has basically stabilized in the short term, but the height above the cotton is still limited due to the large global supply increase in 2024/2025 and the general demand performance. Operationally, when Zheng Mian stabilizes in the short term, he can participate in the rebound market as appropriate, and can sell deep false value call options in the medium and long term.