After the Dragon Boat Festival, dragged down by the decline in ICE prices, Zheng cotton futures jumped short and opened lower. On June 15, the main contract of Zheng cotton futures fell 1.96%. Since then, The decline of Zheng cotton continued in the past two days. As of the close of trading on June 17, Zheng cotton futures closed at 15,640 yuan/ton, down 2.46% from the closing price before the holiday. In the resolution of the Federal Reserve’s monetary policy meeting earlier, the Federal Reserve kept interest rates unchanged at 0%-0.25%. In addition, the Federal Reserve also maintained the pace of bond purchases of US$120 billion per month, in line with market expectations, but raised its forecast for this year and next. inflation expectations and hinted at two interest rate hikes before 2023. Federal Reserve Chairman Jerome Powell acknowledged that inflation could be higher and longer-lasting than expected. The U.S. dollar rose sharply on Wednesday, hitting a seven-week high, as Federal Reserve officials signaled the first post-pandemic interest rate hike could come in 2023. The rise in the U.S. dollar has put negative pressure on agricultural products priced in U.S. dollars, but judging from the cotton supply and demand structure, good news is still coming to the market.
April 9th - June 17th Zheng Cotton’s main contract trend chart
Weather impact intensifies
China and the United States are expected to reduce cotton
Currently, the western United States is experiencing the worst drought in history. According to the latest data from the National Weather Service, as of June 8, local time, 28.11% of the area in the western United States is in extreme drought, and 26.77% of the area is even in extreme drought, with more than 58.38 million people affected. The increasingly hot climate is threatening local water supplies, and some states have begun to implement water restrictions. The western region of the United States is one of the important producing areas of cotton, including California, Arizona, and New Mexico. This region is the production base of high-grade cotton in the United States, accounting for approximately 22% of the total U.S. production, most of which is exported. Professionals pointed out that this is a critical period for cotton growth. The growth of the above-ground parts in the budding stage is accelerated, and water demand is gradually increasing. Drought is not friendly to this crop during the planting period.
The latest data from the US USDA shows that as of June 6, the progress of new flower sowing in the United States is 71%, and the budding rate is 9%, both of which lag behind last year. The same period and the five-year average; the normal proportion of cotton plants is 85%, which is 2% behind the same period last year. Moreover, the Texas region in the south suffered from inconsistent drought conditions in the early stage, and the growth of cotton seedlings was very unsatisfactory. Combined with the current drought situation in the west, this year’s U.S. cotton planting season may not go smoothly. Judging from the USDA U.S. supply and demand balance sheet released on June 10, weather problems in the main U.S. cotton-producing areas have hindered cotton planting progress and growth rates. Expectations for cotton production reductions have increased significantly, and cotton stocks in 2020/2021 have decreased by 89% year-on-year. million tons, inventory consumption decreased by 24% year-on-year.
Judging from the inspection reports of Xinjiang cotton by domestic institutions, it is more likely that Xinjiang’s cotton yield and planting area will decrease next year. The USDA monthly supply and demand report in June also reflected this. In response to the adverse weather in southern Xinjiang, the USDA lowered China’s cotton production for next year, but the overall extent was limited, only 2.55% lower than last year’s production.
Schematic diagram of drought-stricken areas in the western United States
Ineffective order acceptance
Yarn gray fabric inventory has begun to accumulate
The cotton spot market has been on a clear trend of warming since June. The Ministry of Agriculture and Rural Affairs announced that the export situation of textiles and clothing in 2020/21 is improving, business orders are better than expected, consumption is increased by 300,000 tons to 8.4 million tons, imports are increased by 200,000 tons to 2.6 million tons, and ending stocks are reduced to 7.60 million tons. Thousands of tons. However, from the downstream demand side, cotton industry inventories of cotton textile companies increased slightly in May. As of the end of May, the cotton industry inventory in storage by textile companies was 862,400 tons, an increase of 6,100 tons from the end of last month. The disposable cotton inventory of textile enterprises was 1.2845 million tons, an increase of 51,000 tons from the previous month.
In terms of downstream products, as of the end of May, the yarn inventory of textile enterprises was 8.12 days, a decrease of 1.93 days from the previous month; the gray fabric inventory was 15.42 days, a decrease of 1.36 days from the previous month. sky. Finished goods inventories are at historically low levels and continue to decline. Downstream orders were relatively abundant in May, and textile companies were more active in replenishing inventories at low levels, causing cotton industry inventories to rise slightly in May. Recently, with the improvement of the epidemic situation in Southeast Asia, some orders have flowed to India, Vietnam and other countries. The atmosphere of the downstream yarn market has weakened compared with the previous period. The inventory of textile enterprises has begun to accumulate, but the speed is slow and remains at a low level. In terms of weaving mills, most of the startups can still be maintained. The power cuts in Guangdong have eased, and the overall startup rate has declined, but not significantly. In terms of orders, weaving mills are not able to accept follow-up orders well. The current orders for weaving mills are coming to an end. Weaving mills are taking less goods, and the current inventory level has increased slightly.
Recovery of consumer demand is the core driver
Cotton prices are still bullish in the long term
Under the current situation, consumer demand is still the core driving force for Zheng Mian. Global textiles are facing a mismatch between supply and demand. On the one hand, the commodity supply capacity of major textile countries in Southeast Asia such as India has been frustrated. On the other hand, the demand of mainstream clothing consumer countries in Europe and the United States has recovered. Judging from the inventory data of U.S. clothing wholesalers, “destocking” is still in progress, and U.S. textile and clothing import data showed substantial growth in March and April.Seeing its strong domestic demand. The future replenishment cycle will usher in larger orders for cotton textile clothing, and the first beneficiaries may be countries with effective epidemic prevention and control, such as China and Turkey. The core driver ultimately ends up being bullish, but the short-term negative effects continue to exist. In order to curb imported inflation, expectations for RMB appreciation have increased. After the state reserve inventory further declines, imported cotton and imported yarn are important supplements to make up for the domestic cotton supply gap. The appreciation of the exchange rate will help reduce import costs, and the contradiction between domestic supply and demand will weaken, thus in the short term Inhibit the rising space of domestic cotton.
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