When Does Cotton Price Volatility Trend?

In March, cotton prices continued to maintain a trend of volatility. The short-term competition between high and commercial stocks and tight supply and demand made the price of cotton more and more difficult. But the uncertainty of new flower planting, policy and macro will break this delicate balance.

The contradiction between high inventory and shortage of demand has always been the main reason for the low price of cotton.

At the end of January, the inventory of domestic industry and Commerce totaled 5 million 702 thousand and 200 tons, much higher than that of 4 million 548 thousand and 900 tons in the same period last year and 3 million 345 thousand and 400 tons in five years.

And since the beginning of this year, domestic cotton prices have been in a downward trend, with the cost of cotton in North Xinjiang roughly 14700 yuan / ton, and the southern Xinjiang about 15700 yuan / ton, the domestic cotton hedging space in this year is very limited, which has resulted in ample supply of spot goods, slow sale of new sales and soaring volume of warehouse receipts.

In view of the current inventory of industry and commerce, it is indeed too high, but it is not difficult to find out its origin and whereabouts that it does not constitute a stable force for cotton price.

Since the normalization of dumping in China in 2016, thanks to the unique cost performance advantages of the national cotton store, the annual output of the national cotton reserves is basically larger than that of the supply and demand gap of the year. This also makes a considerable portion of the national stock inventory pformed into the social inventory. Therefore, after the superimposed new flower listing volume, the phenomenon of industrial and commercial inventories increases sharply, and the growth rate increases year by year, until the present stock volume.

However, due to the fact that cotton is the annual output of the annual crop, it has been gradually consumed in the new flower market. With the current industrial and commercial inventories, the surplus processing volume and import volume is estimated to be about 1 million 100 thousand tons this year. The domestic cotton supply is expected to be 6 million 800 thousand tons in 2-8 months, assuming that the consumption of 710 thousand tons per month will be reduced to 1 million 800 thousand tons by the end of this year.

Considering the actual time of new flower listing, the effective supply of Chen cotton to the market will be about 10 in the middle of next month. Then the inventory of industrial and commercial businesses will drop further to the lows of history.

Of course, there is also an uncertain factor for the industrial and commercial inventories, that is, the national cotton reserves.

In the past year, the State Reserve policy will be released at the end of the year, and it will start normal rotation in March, but it is still unclear this year.

The temporary absence of the State Reserve policy is partly due to the relatively short supply of short-term market, and on the other hand, the effective stock of the current national reserve has dropped to a low level. Compared with the about 10000000 tons of inventory 3 years ago, the total stock of 2 million 750 thousand tons effective stock may only be up to 200 tons. The adjustment role of the national cotton store on the market price has dropped significantly. Undoubtedly, the fluctuation of cotton prices will increase in the future.

In addition, from the end of last year, during the frequent consultations between the Chinese and American trade groups, the Sino US trade issues progresses smoothly. In February 24th, Trump announced that the tariffs on Chinese exports to the US were postponed. In February 28th, the US trade representative said that China purchases cotton on the list of US agricultural products.

However, under the influence of the current tax level and political factors, the US cotton import is likely to be dominated by the will of the state, and the impact on the domestic market is expected to be relatively limited.

Moreover, for the time being, although the market sensitivity is declining, the uncertainty of Sino US trade negotiations is still very large.

At present, the planting of new flowers in the cotton growing countries in the northern hemisphere is coming. Despite the findings of previous planting intentions survey, the US cotton planting area will continue to increase and the rate of abandoned cultivation will be substantially reduced. For our country, the cotton planting in the whole country will continue to be concentrated in the Xinjiang area. The area of intentional cotton planting in Xinjiang is expected to continue to expand. India is expected to continue to increase MSP to protect domestic cotton production.

The benefit of planting cotton has increased the growing area of cotton planting in various countries. However, the actual cotton planting area and yield are more closely related to the weather conditions. The El Nino phenomenon last winter to this spring has shown that this year's weather conditions are not very ideal, so the new year's cotton output is expected to have recurring possibilities on the weather.

Therefore, on the whole, short term high commercial and industrial inventories remain high, and the pressure of warehouse receipts and hedging will continue to exert pressure on cotton prices. However, the long-term supply and demand period is expected to support core cotton prices, that is, cotton prices may continue to maintain bottom shocks, but on the other hand, with the gradual lowering of inventory, cotton prices fluctuate sharply, and the upcoming cotton planting and policy are likely to provide a driving force for cotton prices.