At the end of April, ICE cotton futures hit 90 cents/pound twice in a row and then fell back. 95 cents/pound seemed to be the high in the first half of the year. Domestic Zheng cotton futures struggled to stabilize after rising to 16,000 yuan/ton in mid-May, and the current price has fluctuated and fallen. Many market participants believe that the recovery of the epidemic and orders will support cotton’s sharp rise. However, from the perspective of supply and demand, historical prices and seasonal cycles, cotton prices are not underestimated.
1. The global cotton supply gap is not large
From the survey on cotton planting intentions, China and a slight decrease in US cotton planting area. According to the survey results of the National Cotton Market Monitoring System, China’s intended cotton planting area in 2021 is 45.426 million acres, a year-on-year decrease of 256,000 acres, or 0.6%; and the USDA’s intended area forecast at the end of March shows that all cotton planting areas in the United States in 2021 It is expected to be 12.036 million acres, a year-on-year decrease of 56,500 acres, a decrease of 0.46%, which is beyond market expectations.
In the context of a small decrease in cotton planting area, output is increasing. In its May supply and demand report, the U.S. Department of Agriculture forecast global cotton production in 2020/21 to be 119.4 million bales, an increase of 6.3 million bales year-on-year; global consumption was increased to 121.5 million bales, and the global cotton supply and demand gap was 2.04 million bales, and inventory consumption The ratio is still as high as 74.9%, and China’s inventory-to-consumption ratio is also 91.38%, which is much higher than the 67% in June 2018. Therefore, even if the global epidemic prevention and control situation improves, it is not enough to rely solely on a rebound in demand to change the relationship between supply and demand. A reduction in supply is needed to increase the rising factor.
(Cotton consumption ratio in China, the United States, and India)
2. The current price is above the historical average
Judging from the historical price trend of ICE cotton futures in the past 10 years, 60 cents is the bottom area , it fell below in February 2016 and the end of March 2020, but quickly rose back above this price, so falling below 60 cents can be understood as oversold; while above 90 cents is a high price zone, 2013-2014 The annual price stagnation above 90 cents has been relatively long, with no more than 10 trading days in July 2018, and the most recent time was at the end of February 2021, which lasted only one week. For most of the time, ICE cotton fluctuated between 60 and 90 cents, with an average price of 75 cents. If 75 cents is used as the value center, then the price above that is on the high side, and the price below 75 cents is in the low zone. If the price still runs in this range in the future, then it is safer to go long below 75 cents, and there will be at least a 50% probability of making a profit, and vice versa. The current price of ICE cotton is still above 82 cents, which is obviously on the high side, and the risk of long is greater than that of short.
From the perspective of domestic cotton trends, the country began to destock in May 2016, and the cotton supply and demand relationship returned to marketization. The price of Zheng cotton futures is obviously not lower than 10,000 yuan/ton. Reasonable, and it is short-lived if it exceeds 19,000 yuan/ton. It can be considered that domestic cotton futures fluctuate between 10,000-19,000 yuan/ton, with an average price of 14,500 yuan. In the same way, if the futures price is below 14,500 yuan/ton, there is at least a 50% probability that you will make a profit, and vice versa. The current domestic cotton futures price is above 15,500 yuan/ton, which is obviously on the high side, and the risk of long is greater than that of short.
There was a lack of substantial bullish themes before the third and third quarters
At present, China’s cotton cultivation has already End, the early speculation on the cotton weather conditions in Xinjiang, some cotton fields were destroyed by strong winds and need to be replanted, but this is relatively common in previous years and will not cause a reduction in cotton production; the US cotton planting progress is 49%, and rainfall in West Texas has alleviated the drought. , the weather hype was short-lived again. In fact, in recent years, weather factors have not had a great impact on cotton growth. The supply mainly depends on the cotton planting area.
The main factor affecting cotton in the third quarter is still concentrated on the demand side. The global COVID-19 epidemic is still plaguing some regions, but as vaccines gradually become more popular, the margin of support for cotton prices due to the demand recovery theme is getting weaker and weaker, and it is difficult for the market to get another boost. The expectation of the Federal Reserve raising interest rates, as well as most commodities, such as U.S. soybeans, corn and other agricultural products, as well as the high fluctuations in the U.S. stock market, are always warning about cotton’s rise. Once liquidity begins to shrink, it will have a negative impact on cotton.
While ICE cotton futures have stabilized in recent days, domestic Zheng cotton futures have continued to fall, and the market lacks obvious support from bullish news. In essence, the current cotton price is not undervalued and can only be digested by falling. In the later period, if the futures price can fall to around 14,500 yuan/ton, the opportunity to go long will come. </p
