Recently, the volatility of Zheng Mian has increased. Driven by funds, it has effectively broken through the early platform and led to an upward trend in volume, attracting strong market attention. Starting from cotton fundamentals and considering future domestic cotton planting intentions, cotton inventory, and downstream yarn production and inventory conditions, the author believes that Zheng Mian has not yet been able to clear the clouds and see the light of day.
Domestic cotton planting intention declines year-on-year
National Cotton Market Monitoring System A nationwide special survey on cotton planting intentions was launched in mid-to-late November last year. The samples covered 15 provinces (autonomous regions), 50 cotton planting counties (cities, groups), and more than 1,895 designated cotton planting information contact households. The survey results show that the country’s intended cotton planting area in 2020 is 45.875 million acres, a year-on-year decrease of 2.068 million acres.
The intended cotton planting area in the northwest inland cotton region is 35.205 million acres, a year-on-year decrease of 1.3%. Among them, the intended cotton planting area in Xinjiang is 34.927 million acres, a year-on-year decrease of 1.1%. The intended cotton planting area in the middle and lower reaches of the Yangtze River is 3.947 million acres, a year-on-year decrease of 19.5%. The intended cotton planting area in the Yellow River Basin is 6.348 million acres, a year-on-year decrease of 8.2%.
There are two main reasons for the decline in cotton planting intentions: First, the decline in seed cotton purchase prices has frustrated cotton farmers’ enthusiasm for cotton planting. According to data from the National Cotton Market Monitoring System, as of November 30, 2019, the average purchase price of seed cotton in the mainland in 2019/2020 fell by 12.5% compared with the same period of the previous year, and the average purchase price of seed cotton in Xinjiang fell by 23.9%. Second, the later policy is still unclear. 2019 is the last year that Xinjiang’s cotton target price subsidy will be implemented for a “three-year period”. The later policy is still unclear, which will also have a certain impact on cotton farmers’ enthusiasm for planting cotton.
In general, as long as Xinjiang’s cotton planting intentions do not decline significantly, domestic output will eventually be relatively stable.
Cotton stocks are severely polarized
In the past two years, cotton warehouses have Warehouse receipts have repeatedly hit new highs. Since November 2019, the growth rate of warehouse receipts has accelerated significantly. As of December 31, 2019, the number of registered warehouse receipts at Zhengzhou Commercial Exchange was 26,591, with 6,503 valid forecasts, and the total number of warehouse receipts reached 33,094. , equivalent to about 1.32 million tons of Zheng cotton spot goods, which is the highest value since Zheng cotton warehouse receipts have data, and is in the process of continued growth. Some people in the industry speculate that the total amount of warehouse receipts may reach the historical level of 35,000, and the spot stock on the market will then reach as high as 1.4 million tons, accounting for approximately 24% of the new cotton production in 2019/2020. Therefore, the pressure of warehouse receipts on the market cannot be ignored.
In addition, cotton commercial stocks in November 2019 were approximately 4.5 million tons, a year-on-year increase of 5.48% and a month-on-month increase of 39.46%, which was the highest value for the same period in the past 10 years. At the same time, the cotton industry inventory in December 2019 was only 27.4 days, a year-on-year decrease of 27.13% and a month-on-month decrease of 4.53%, which was the lowest in the same period in the past five years.
It can be seen from this that currently a large amount of cotton is concentrated in the hands of ginners and traders, and the raw material inventory of the spinning mills is extremely low. If the spinning mills do not actively replenish the raw material inventory in the future, Then Zheng Mian has insufficient motivation to continue its upward breakthrough, and short sellers may make a comeback.
Yarn production decreases and inventory remains high
November 2019, The national yarn output was 2.614 million tons, a year-on-year decrease of 4.18%, and a month-on-month increase of 5.11%. The cumulative yarn output from January to November was 22.436 million tons, a year-on-year decrease of 13.68%. It is expected that the yarn output in 2019 will decline year-on-year. In 2018, the national yarn output was 28.658 million tons, a year-on-year decrease of 22.37%. It can be seen from the month-on-month change trend of annual yarn production that there is an obvious downward trend. In November 2019, domestic yarn inventory was 23.87 days, a year-on-year increase of 20.3%, a month-on-month decrease of 12.1%, and was at a historical low for the same period.
In summary, the survey results of the decline in domestic cotton planting area in 2020 have a substantial impact on cotton fundamentals limited. At present, cotton warehouse receipts and commercial inventories are at a historical high for the same period in the past five years, and industrial inventories are at a historical low for the same period. At the same time, yarn production has declined and corporate inventories are high, indicating weak downstream demand. In addition, with the arrival of the traditional textile holiday window, Zheng cotton has declined. The pressure remains. From a technical perspective, Zheng Cotton has risen rapidly in the short term and is not easy to chase higher. It can be short-sold in a timely manner after stabilizing.
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