Changing Macro Environment Restraining Cotton Rising Power

Before the May 1 holiday, with the good news coming and going, the price of cotton both inside and outside ended downward trend, and came out of the rebound market, but this did not mean that the bottom of cotton price was tamped. Under the complicated and changeable macro environment, the cotton market at this stage is still facing many differences: after the epidemic has been controlled in some countries, consumption has not been as warm as expected; China is actively purchasing agricultural products from the United States, fulfilling the first stage trade agreement content, but the two countries in China and the United States are strained under the influence of the epidemic situation; low price endows the market with many favorable expectations for the cotton supply side. External factors restrict the impact of low price on the supply side.

The economic sequelae of the epidemic began to manifest.

From overseas epidemic data, although no obvious new confirmed cases have been found, and the epidemic is still spreading in India, Brazil and other populous countries, the number of newly diagnosed cases in Italy, Korea and other countries has been greatly reduced. The number of cure has also been increasing, and gradually entered the stage of prevention and control. Therefore, the multinational government will also lift the ban and lift off the debt and put it on the agenda, and control and control will be released one after another.

But after the release, will the resumption of multi - country production bring about a rebound in global cotton consumption? From the consumption situation of the May 1 holiday, we can see that consumption is still hard to recover before the epidemic. Tourism data from the same journey show that the tourism consumption scale of May Day holiday reached nearly 60% of the same period last year. The fear of the epidemic still suppressed the enthusiasm of consumers in offline activities. However, for textile and clothing terminal consumption, the more important influence is the sequela of the epidemic to the economy: the forced freezing of pre economic activities leads to a decline in income, directly reducing the consumption power of the residents, restraining unnecessary consumption, and will continue to affect the order of cotton spinning industry in the future.

Willow flower is unknown, trade relations are complicated.

Last Thursday's US cotton export weekly report was bright: as of April 23, 2020, the US cotton signed a net contract of 98 thousand and 700 tons, an increase of 95 thousand and 100 tons compared with last week. China signed 100 thousand and 300 tons, cancelled 4 thousand and 300 tons, and signed 95 thousand and 900 tons.

This means that even when global demand for cotton textile is weak, China is still actively buying the US cotton. Combined with the contents of the first stage trade agreement, we can see that the signs of the slowdown in Sino US trade relations are strengthening. At the same time, if China continues to purchase, on the one hand, it will help reduce the global cotton stocks; on the other hand, while ensuring cotton reserves, China will maintain the international competitiveness of downstream cotton textile products, and is conducive to the restoration of domestic cotton demand.

However, at this time point, the uncertainty of macro risks is also gradually increasing. The epidemic is increasing in the United States, and the economic operation or the continuation of the blockade is being tearing up the US. Trump is also intent on "throwing the pot" on China, which has cast a shadow over the bilateral relations. Affected by this, the global stock market fell sharply last Friday, and the offshore RMB exchange rate depreciated. Sino US trade relations are likely to dominate market sentiment once again.

External factors constraining low price transmission path

Under the background that cotton prices are close to historical lows, the market is expected to have a lower supply of cotton in the future. This brings low cotton to a certain degree of resilience, but external factors restrict the transmission of low price to the supply side. In terms of domestic supply, although Xinjiang will reduce part of the cotton planting area in the future due to the limited water restriction policy, the Xinjiang cotton planting subsidy policy with a target price of 18600 yuan / ton will continue to protect the cotton growers' willingness to grow in Xinjiang. Under the framework of the first stage of the trade agreement, China's active purchase of US cotton has boosted sales, which is a reassurance for the cotton growers in the growing season and has stabilized the willingness to grow cotton. In addition, the impact of the epidemic on the multinational economy has created the environment for the current strong dollar. This will also inhibit the influence of low price cotton on Brazil cotton farmers, India cotton farmers and other main cotton producing areas.

To sum up, the so-called good will remain fragile in the face of changing macro environment, which determines that the demand side needs to be repaired for a long time. At the same time, it is in the new cotton planting season, but external factors restrict the transmission path of the undervalued value to the supply side of cotton, and the global cotton planting willingness in the new year may be relatively stable. In the medium and short term, cotton is not strong enough to act.