Market Analysis: Focus On The Breakthrough Trend Of Zhengmian

 

The driving force of cotton price upward mainly comes from the following aspects

USDA report. The U.S. Department of agriculture cut the U.S. cotton production and year-end inventory estimates in 2021 / 22 in the supply and demand report, and American cotton reached an 11 year high. Global ending inventory continued to decline to 1850.8, down 158000 tons or 0.8% month on month. More neutral reports helped ice cotton price reach a new high in 11 years. This has brought a significant boost to the global cotton market.

Demand has improved. The downstream market, which maintains a weak pattern in general, has shown signs of improvement in some regions. China's exports will remain resilient, the production and marketing expectations will be warmer after the festival, and the confidence of downstream yarn and cloth enterprises will be strengthened.

The price is up. The high cost ginning plants have strong willingness to support the price. On 2021 / 22, the mainstream transaction price of 3128 / 28b of Xinjiang machine mining was raised from 22600 to 22900, and sporadically below 22600. Such selling prices are not attractive to ginners. Therefore, we can see that the processing and sales progress of this year is significantly lower than that of previous years. Sporadic shipment has gradually reduced the low-cost resources in the spot market. Under the situation that the downstream cotton enterprises lose the national storage supply, they will have to strengthen the purchase of new cotton after the year.

 

Rotation and replenishment are expected. After several rounds of storage, the current state-owned cotton storage is about 1.4 million tons, and the low level of inventory increases the possibility of future rotation. From the perspective of recent years' rotation, all appear in the first quarter. In addition, the national cotton market monitoring system sampling survey shows that by the beginning of January 2022, the average cotton inventory days of the surveyed enterprises were about 31.8 days (including the quantity of imported cotton), which decreased by 2.1 days month on month and 4.1 days on year, 3.8 days lower than the average level of the same period in the past five years (2016-2021, deducting 2020). It is estimated that the National Cotton Industrial inventory is about 718000 tons, with a month on month decrease of 6.1%, a year-on-year decrease of 6.2%, and a decrease of 5.9% compared with the average level of the same period in recent five years (2016-2021, deducting 2020). It can be seen that the raw material inventory of cotton enterprises is also at a low level. Recently, as domestic textile enterprises and traders expect the market to recover after the festival, they have actively replenished the stock.

 

Weather hype. 4、 In May, the northern hemisphere cotton planting period, when the weather speculation will be a high probability event. Recently, the smoke and dust from the Tonga volcano eruption has also triggered discussions about the reduction of sunshine time and accumulated temperature, which may have adverse effects on agricultural production.

 

Global inflation, central bank liquidity. The Fed's pumping will be a cautious process, with the mainstream view that global inflation will continue into the first half of next year. In order to resist the downward pressure of the economy, China's central bank may introduce measures to improve liquidity before the festival. The first quarter is the peak of social finance, which usually accounts for 35-40% of the whole year, which will provide more background for the commodity market.

 

Capital trends. U.S. funds are recovering the momentum of actively buying cotton. We can see that even after a round of decline, the total position and non-commercial long position of ice cotton are still at a higher level compared with previous years, and the two positions show signs of turning upward again, indicating that the fund's interest in the cotton market is expected to further strengthen, which is beneficial to cotton prices.

 

Some of the positive factors listed above, of course, some factors that inhibit the cotton market should not be ignored: due to the substantial increase in planting income, the global cotton planting area is likely to increase this year; The Fed's scale reduction and interest rate increase have also been put on the agenda, with an increase in interest rates as early as March; The development of the epidemic needs to be observed and the downstream consumption needs to be verified.

 

After the market outlook: the tendency of strong shock before the festival, mainly in the range of 21000-22000; After the festival, it is expected to open up new operation space with the support of demand and liquidity.