Bull Market Repeat? Cotton Supply Pressure Has Not Yet Been Alleviated

Due to the partial improvement of the macroeconomic situation, the good anticipation of Sino US trade talks and the vision of the coming 3-4 months of traditional peak season made cotton begin to rise after a period of consolidation. In February 19th, the main contract of zhengmian 1905 rose 1.89%, the biggest gain since October 2018.

Over the next few days, the oscillations were strong, trading volume and positions rose rapidly, and in February 22nd, 15500 important integer points were broken through under the impetus of funds.

But from a fundamental point of view, the supply side pressure has not yet been released, followed by rising space or more limited.

Output is high, inventory is abundant, imports are increasing year by year, supply side pressure needs time to release.

According to the data released by the Statistics Bureau of Xinjiang autonomous region, the output of cotton in Xinjiang reached a new high in 2018, reaching 5 million 111 thousand tons, an increase of 11.9% over 2017.

The new high output is pformed into high inventory.

By the end of January, cotton business inventories were 4 million 848 thousand and 600 tons, or 24% tons, or 938 thousand and 600 tons, compared with 3 million 910 thousand tons in the same period last year.

The turnover of cotton warehouse in the mainland was 536 thousand and 700 tons, which was 152 thousand and 300 tons lower than that of the same period last year, and the turnover of warehouse cotton turnover in Xinjiang area was 3 million 995 thousand and 900 tons, an increase of 818 thousand and 900 tons compared with the same period last year, and 316 thousand tons of cotton warehouse stock in the bonded area, an increase of 25 thousand tons in the ring.

The cotton industry has an inventory of 853 thousand and 600 tons, a decrease of 16 thousand and 600 tons, a 33.60% increase from the 638 thousand and 900 tons of the same period last year, or 214 thousand and 700 tons.

Among them, disposable cotton stocks were 989 thousand and 400 tons, an increase of 138 thousand and 400 tons over the same period last year.

Industrial and commercial inventories totaled 5 million 702 thousand tons, representing an increase of 1 million 67 thousand and 200 tons or 23.03%, compared with 4 million 634 thousand and 800 tons in the same period last year.

According to Wind's statistics, from November 2018 to January 2019, total industrial and commercial inventories increased by 19.44%, 20.98% and 25.35% respectively, the year-on-year increase.

As cotton prices soared in the middle of last year, the relevant departments issued 800 thousand tons of import quotas.

According to customs statistics, China's cotton import volume was 220 thousand tons in December 2018, an increase of 116% over the same period last year.

Import volume is expected to increase in the current year compared with 2017/18, with annual import volume approaching 2 million tons.

This can also be verified from the port inventory.

Considering the low operating rate of textile enterprises before and after the Spring Festival, it is estimated that the total volume of industrial and commercial inventories will exceed 1 million 250 thousand tons in 2.

And the resumption of work after the Spring Festival festival is obviously lagging behind in previous years. From the end of January, industrial inventories rose by 33.60% or 214 thousand and 700 tons. In the past, some textile enterprises have already replenishment of the warehouse before the festival. After the holidays, they may choose to consume raw materials inventory first, concentrate on replenishment, or weaker than expected. They should not be overly optimistic about the replenishment of the textile peak season in 3-4.

Quality index rises, warehouse receipt pressure is high.

According to the cotton notarization inspection network release, as of January 31, 2019, 2018 annual inspection of new cotton 22 million 760 thousand packets, totaling 5 million 140 thousand tons, a slight increase of 0.91% over the same period.

The main quality indicators of the four public inspection increased year-on-year.

White cotton 3 grade and above gear ratio 91.21%, up 1.09%, fiber length 28 mm and above gear ratio 94.73%, up 2.01%; horse clone value A+B file ratio 87.40%, up 7.45%; fracture strength is 35.70% than S2 and above, up 7.30% compared with the same period.

Although this year's futures market for quality indicators of the decline compared with last year, but because of the overall cotton quality indicators move upward, it is estimated that this year's average increase in warehouse receipts is more than 1000 yuan.

From the warehouse receipt volume, we can see that the demand for hedging this year has increased unabated than ever before.

As of February 21st, there were 1909 old cotton warehouse receipts in 2017/2018, which need to be cancelled in March, and 15175 new flower warehouse receipts in 2018/19, 23 more than the previous day, and 2130 effective forecasts, representing 23 more than the previous day.

The warehouse receipt plus effective forecast totaled 19214 pieces, approaching 800 thousand tons mark, and the warehouse receipt volume was nearly 10 times that of the same period last year.

After the rise of Zheng cotton, the current basis is rapidly shrinking or even reversing. It will attract the cotton stocks on the market to continue to be converted into warehouse receipts, and the pressure of the latter will be huge.

The planting area in recent years is increasing.

In February, the Ministry of agriculture and rural affairs predicted that China's cotton planting area will be 3 million 367 thousand hectares in 2018/19, a slight increase of 0.51% over the same period last year, estimated at 3350.

Although the area has not been increased much, the annual yield per unit area increased significantly in recent years due to the promotion of high quality cotton seed and mechanical planting technology.

At present, the popularity of machine picked cotton has reached 7-8 in the northern Xinjiang and 2 in the southern Xinjiang.

South Xinjiang is expected to continue to raise its production per unit area, and there will be room for cost reduction.

In other countries, according to the NCC planting intentions survey, 2019/20 cotton cultivation in the United States will grow to 14 million 500 thousand acres (88 million 15 thousand acres), an increase of 2.9% over the same period last year.

USDA and Brazil national commodity supply company (CONAB) continue to increase Brazil's output in the latest cotton production forecast, mainly due to the growing area of Mato Grosso State in Brazil's largest cotton producing area.

India side, because last year's bottom guaranteed purchase price MSP increased substantially, the price performance ratio was obviously better than other agricultural products planting, estimated that the India planting area will also increase this year.

summary

The expectation of the replenishment of the textile peak season in 3-4 and the optimistic anticipation of the Sino US peace talks promoted Zheng cotton's strong rebound in recent days. However, the supply side pressure has not yet been substantially alleviated from the year-on-year increase in the year-on-year growth of industrial and commercial inventories and the long-term influx of warehouse receipts.

After the price rises sharply, the internal and external spreads widened, and the price ratio of imported cotton increased and the basis reversed, which was not conducive to inventory digestion and warehouse receipt outflow.

Cotton prices will also increase next year when planting is ready.

At present, there are more than 250 tons of state cotton stocks, which still have strong regulation and control capability for prices.

Considering comprehensively, cotton's subsequent rise space is limited, so it is not suitable to catch up too much.