Recently, Zheng Cotton has been oscillating around the 120-day moving average. Regarding the later price trend, we believe that at present, the pressure on warehouse receipts is huge, and it is difficult for Zheng cotton to have a trend upward trend before the warehouse receipts effectively flow out.
The data shows that the number of registered warehouse receipts for Zheng Cotton has reached a new high since the reform of the cotton quality inspection system in September 2010. The total number of registered warehouse receipts + valid forecasts for Zheng cotton is 7,030, equivalent to 56,240 lots of Zheng cotton contracts. There are currently about 40,000 unilateral positions in the CF1705 contract, and the ratio of virtual to real orders is 0.71:1, indicating huge pressure on real orders.
Looking back at history, the period of greatest pressure on Zheng Cotton’s warehouse receipts was in 2007/2008. There were 10,159 registered warehouse receipts + valid forecasts for Zheng cotton that year. At that time, one warehouse receipt was equivalent to 4 lots of cotton, which was equivalent to 40,636 lots of Zheng cotton contracts. There are 9,073 unilateral positions in the CF0805 contract, and the ratio between virtual and real orders is 0.22:1.
The formation of huge warehouse receipts is due to the large amount of circulating resources and the existence of market opportunities. In terms of market opportunities, in the early days of the launch of new cotton, the difficulty in transporting Xinjiang cotton led to a rapid rise in futures prices. The rapid rise in Zheng cotton after the Spring Festival, and the rapid rise in prices in the early stages of the rotation of reserve cotton all provided good opportunities for sellers to register warehouse receipts. In terms of circulation resources, since 2014/2015, my country has stopped rotating cotton reserves, and the spot market has abundant cotton resources to form warehouse receipts.
Currently, in addition to the existing registered warehouse receipts and valid forecasts, there are still a large number of cotton resources on the market available for registered warehouse receipts. Data from the China Cotton Information Network shows that at the end of March 2017, cotton commercial stocks were approximately 2.03 million tons, an increase of 370,000 tons compared with the same period last year. Judging from what we know, the cost of cotton storage in the hands of cotton trading companies is gradually increasing, and they hope to wait for good opportunities to carry out hedging operations.
The impact of warehouse receipts on spread trends. In the current market environment, receiving warehouse receipts will be the main way for buyers to digest warehouse receipts. Judging from the current quality structure of warehouse receipt cotton, most of it is cotton with high water premium. In the bidding process with cotton reserves, the price is not attractive enough. From the analysis of the current price difference trend of Zheng cotton futures, the current spot price is basically flat, the warehouse receipt cotton price has no advantage, and the outflow power is insufficient. If the discount range of Zheng cotton is around 1,000 yuan/ton, or the futures discount increases further, it will be conducive to the outflow of warehouse receipts; if the discount of Zheng cotton remains at the current level, it will be detrimental to the outflow of warehouse receipts, and it will still be beneficial to the outflow of warehouse receipts. A greater pressure is formed on the disk.
Looking back at history, the price of Zheng cotton in 2007/2008 continued to weaken after reaching a stage high in March 2008, during which the 2008 financial crisis occurred. Judging from the situation in 2016/2017, Zheng Cotton reached a stage high in the early stage of the reserve cotton rotation in March 2017. The difference is that the cotton supply in the later part of this year mainly comes from the release of reserve cotton.
The transaction situation of cotton reserves will affect market sentiment. Regarding the future cotton price trend, we believe that the transaction situation of cotton reserves will significantly affect market sentiment. It is estimated that there will be a cotton gap of about 2 million tons this year, and with companies pre-purchasing a certain amount of cotton for the new year, the total cotton reserve volume is expected to be 2.5 million tons. Based on the 120 working days from March to August and the daily auction volume of 30,000 tons, the cotton reserves will produce approximately 3.6 million tons of resources. Considering that since March, the daily auction volume of cotton reserves has been between 30,000 and 32,000 tons, the actual available resources may be more than 3.6 million tons.
Therefore, if the reserve cotton transaction rate remains at around 60-70%, market sentiment will remain stable, and other factors will dominate the impact of cotton price trends. If the reserve cotton transaction rate fluctuates significantly, market sentiment and cotton prices will also fluctuate significantly. In the later period, as the market begins to speculate on the weather and spot circulation resources gradually decrease, cotton prices are expected to stabilize and rise.
Based on comprehensive analysis, we believe that it will be difficult for Zheng Cotton to start a trend upward trend before the warehouse receipts are digested. From a contract perspective, warehouse receipt pressure has obviously suppressed the 1705 contract, and as delivery is approaching, the 1705 contract lacks room for imagination. There is room for imagination in the 1709 contract, which requires effective outflow of warehouse receipts.
In terms of risks, attention needs to be paid to the obstacles that may be encountered in the operation of cotton reserve rotation during the rainy season, the area of new cotton sown and weather conditions during the sowing period, as well as macroeconomic policy trends.
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