Since August 2021, the Delta mutant strain has been raging, and the global economic vitality has cooled down, just as new flowers are about to be picked. What is the next trend of the market will be discussed in this monthly report.
Part 1 Review
1. The rise in international cotton prices slowed down after a surge
Since August, the Federal Reserve has discussed reducing the scale of bond purchases this year, but is in no hurry to raise interest rates. Funds have continued to push ICE cotton prices higher, climbing to 96.71 cents/pound on August 17; with the impact of the Delta mutant strain, weakening The demand outlook has been weakened, US retail sales data and consumer confidence have plummeted, and the increase in international cotton prices has slowed down. As of August 30, 2021, the settlement price of the main ICE cotton futures contract was 94.23 cents/pound, up 5.41% month-on-month and 44.61% year-on-year. The average price of the International Cotton Index (M) represents the average CIF price of imported cotton in China’s main port. 106.71 cents/pound, discounted by 1% tariff, the RMB import cost is 17,191 yuan/ton, an increase of 5.91% month-on-month and a year-on-year increase of 37.05%. 2. Domestic cotton prices stabilized after rising high into August. As the domestic new flower picking time approaches, seed cotton harvest is expected to be high. Funds continue to push domestic cotton prices up. Zheng cotton rose to 18,505 yuan/ton on August 18. , reaching the highest level since June 2018. In late August, as the popularity of downstream cotton yarns cooled down, and non-textile cotton companies stopped participating in bidding for cotton reserves, which cooled the market, domestic cotton prices stopped rising and stabilized. As of August 30, 2021, the settlement price of the main cotton futures contract on the Zhengzhou Commodity Exchange was 17,560 yuan/ton, a month-on-month increase of 0.83%, and a year-on-year increase of 34.15%; the national cotton price B index (representing the mainland 328-grade lint price) was 17,992 yuan /ton, up 5.91% month-on-month and 37.05% year-on-year.
Part 2 Analysis
1. Domestic and international macro-environment
The characteristics of “risk aversion” have begun to appear. The global spread of the Delta variant virus has become the main driving force for this round of risk aversion. According to data from the World Health Organization (WHO) as of August 17, 2021, Delta has spread to 148 countries and regions around the world. The epidemic has caused the manufacturing PMI of the world’s major economies to begin to fall since May. The preliminary value of the University of Michigan’s consumer confidence index in the United States plummeted to 70.2 in August, hitting a new low since 2011. The current large amount of liquidity in the financial system has pushed the U.S. stock market to record highs. Another risk point for the market is the uncertainty about the speed of the Federal Reserve’s withdrawal of easing policies. The correction in crude oil prices over the past month shows that the first cornerstone of risk assets has been slightly shaken. U.S. stock volatility has also risen, and asset risk aversion has suddenly heated up.
The scissors gap reached a new high, and ensuring supply and stable price remains the key. Statistics from the Bureau of Statistics show that in July, CPI increased by 1% year-on-year, and PPI’s year-on-year increase returned to the year’s high of 9%. The scissor difference between the two widened from 7.7 percentage points in the first two months to 8 percentage points, setting a new record high. This means that prices are not transmitted smoothly from upstream to downstream, adversely affecting the production and operations of midstream and downstream enterprises. This year’s State Council executive meeting mentioned many times that we should do a good job in ensuring market supply and stabilizing prices, and improve and implement plans to respond to rising prices of important raw materials. The central bank released the “China Monetary Policy Implementation Report for the Second Quarter of 2021” and pointed out that in the next stage, moderate monetary growth will be used to support high-quality economic development, help small and medium-sized enterprises and difficult industries continue to recover, and keep the economy operating within a reasonable range.
2. Analysis of supply and demand situation
(1) Supply
Enter In September, the cotton harvest in the southern hemisphere is coming to an end, and the cotton harvest in the northern hemisphere is about to begin. Although the growth progress of US cotton is slow and the monsoon rains in India are delayed, global production is still expected to increase in the new year. International agencies predict that global cotton production in 2021/22 will be between 2505-2587 million tons, with a year-on-year growth rate of 3.47-5.71%.
1. International cotton supply
The progress of new cotton knots and bolls in the United States is slow. According to data from the United States Department of Agriculture, as of August 22, the progress of new cotton bolls in the United States was 79%, and the progress of cotton spinning was 14%, a year-on-year decrease of 8 percentage points and 7 percentage points respectively. U.S. cotton production in 2021/22 is forecast to be 3.759 million tons, a year-on-year increase of 18%. Monsoon rains in India are slow and cotton sown area has decreased. Due to the slow progress of India’s southwest monsoon season and competition with other crops, as of late August, India’s cotton sown area was 11.704 million hectares, a year-on-year decrease of 8.34%, and the industry is expected to decrease by 5% year-on-year. At present, new cotton from the northern region has begun to appear on the market in small quantities.
Brazilian new cotton harvest is lagging behind and export signings are slow. As of August 21, the Brazilian cotton harvest progress was 73.5%, which is more than 10 percentage points lower than the same period last year. 80% of the seed cotton has been sold, but the contracted sales progress of lint cotton by processing companies and exporters is significantly behind that of 2018/19 and 2019/20. year.
2. Domestic cotton supply
National cotton industrial and commercial inventories have declined. Entering the end of the year, national cotton commercial inventories continued to decline; as cotton prices continued to rise, textile companies became more cautious in purchasing cotton, and industrial inventories decreased year-on-year. According to the National Cotton Market Monitoring System and wind data, at the end of July, the national cotton commercial inventory was 2.5 million tons, lower than the 361,100 tons in the same period last year; in early August, the national industrial inventory was 860,000 tons, lower than the 150,000 tons in the same period last year. Optimize the cotton reserve policy to improve the efficiency of ensuring supply and stabilizing prices. Starting from August 24, reserve cotton rotation transactions are limited to textile cotton companies.Falling, the performance of cotton yarn is even worse
Since late August, supported by the expected harvest of new flowers, Zheng cotton has been weak and stable, and the enthusiasm of downstream cotton yarn traders for inquiry and stocking has cooled down. The price trend pressure of cotton yarn is obviously greater than that of cotton. Data shows that the Zheng cotton CF2201 contract fell from a high of 18,505 yuan/ton on August 18 to 17,200 yuan/ton on August 31, a decrease of 7.05%. The Zheng yarn CY2201 contract fell from 27,155 yuan/ton on August 17. As of August 31, it was 24,705 yuan/ton, a decrease of 9.9%, and there was a further downward trend.
5. The expected harvest of new flowers hinders short-term market positioning
According to the survey data of China Cotton Network, the expected performance of the seed cotton purchase market in 2021 is as follows: First, due to the increase in processing capacity in Xinjiang, 54% of the survey participants believe that cotton companies will compete for resources in the early stages of the opening of Xinjiang seed cotton scales. , cotton prices have started in advance; secondly, 78% of the participants in the survey believe that the purchase price of seed cotton is expected to be high; thirdly, regarding market expectations, 47.31% of companies expressed uncertainty about whether cotton prices will continue to rise. In addition, the price of cottonseed this year is significantly higher than last year. The current price of cottonseed in Xinjiang is 1.65-1.90 yuan/jin, and it was around 1.2 yuan/jin in the same period last year, an increase of 37-58%. In previous years, after a large amount of new cotton came on the market, the price of cotton seeds would fall to a certain extent, and processing companies would choose the opportunity to sell cotton seeds to ensure profits.
Part 3 Production, Sales and Inventory Forecast
1. The global cotton production and demand gap narrowed in 2021/22, and the ending inventory-to-consumption ratio dropped
The August global cotton production, sales and inventory forecast data from the International Cotton Advisory Committee (ICAC) show , the global cotton opening inventory in 2021/22 is 20.98 million tons, a year-on-year decrease of 1.35 million tons, a decrease of 6.05%; global cotton production is 25.05 million tons, a year-on-year increase of 840,000 tons, an increase of 3.47%; consumption is 2,578 tons, a year-on-year increase of 210,000 tons , an increase of 0.82%; the ending inventory was 20.25 million tons, a year-on-year decrease of 730,000 tons, a decrease of 3.48%; the global cotton production shortage required 730,000 tons, a narrowing of 630,000 tons compared with 2020/21; the global cotton ending inventory consumption ratio was 78.55% , a decrease of 3.5 percentage points compared with 2020/21.
2. Domestic cotton consumption in 2020/21 year-on-year Adjusted to increase
Based on relevant special surveys and analysis of domestic and foreign economic environments and market conditions, in August 2021, the National Cotton Market Monitoring System analyzed the domestic cotton production, sales and inventory in 2020/21. The adjustments are as follows: cotton consumption in 2020/21 is 8.49 million tons, an increase of 100,000 tons from the previous month; import volume is 2.8042 million tons, a decrease of 52,100 tons from the previous month; the ending inventory is 6.4541 million tons, a decrease of 152,100 tons from the previous month. The inventory consumption ratio 76.02%, a decrease of 2.36 percentage points from the previous month.
The forecast of domestic cotton production, sales and inventory in 2021/22 is as follows: China’s cotton production in 2020/21 is 5.578 million tons, a year-on-year decrease of 372,000 tons, a decrease of 6.25%; consumption is 824 million tons, a year-on-year decrease of 250,000 tons, a decrease of 2.94%; the import volume was 2.31 million tons, a year-on-year decrease of 494,200 tons, a decrease of 17.62%; the ending inventory was 6.0641 million tons, a year-on-year decrease of 390,000 tons, a decrease of 6.04%; production and demand The gap is 2.662 million tons, 122,000 tons larger than that of 2020/21, and the inventory-to-consumption ratio is 73.59%, a decrease of 2.43 percentage points from 2020/21.
Main conclusions
To sum up, the Delta mutant strain is rampant, the global manufacturing boom continues to be lower than expected, the service industry has cooled significantly, consumer confidence has plummeted, and the risk aversion characteristics of the capital market have begun to appear. Most commodities have entered a period of weakness recently, and global cotton consumption is facing re-evaluation in the new year. At present, the growth of new flowers has recovered, and the global cotton supply and demand relationship is expected to be more abundant than in the previous period. September coincides with the upcoming acquisition of new flowers in the northern hemisphere. The expected rush to harvest Chinese seed cotton hinders short-term market positioning and does not change the trend of cotton prices towards stabilization in the medium term. </p
