The Federal Reserve released the minutes of its April monetary policy meeting on Wednesday. The minutes showed that if economic activity picks up strongly, the Fed will need to discuss tightening monetary policy in the coming months. In addition, panic over the plunge in cryptocurrencies such as Bitcoin spread to the U.S. stock market. U.S. stocks fell sharply after the opening, with the three major stock indexes falling by more than 1% during the session. Moreover, the rise of the U.S. dollar and the sharp fall in U.S. soybean and grain prices have put great pressure on external cotton futures, with the main July contract falling back to 82 cents/pound.
The National Standing Committee held on May 19 also once again emphasized the need to strengthen the joint supervision of commodity futures and spot markets, make arrangements to ensure the supply and stabilize prices of commodities, and maintain the smooth operation of the economy. Domestic overheated commodities fell across a large area. The atmosphere in the entire financial market suddenly became tense. Zheng cotton jumped short and opened low in the night, with the main 2109 contract hitting an intraday low of 15,410 yuan/ton. Zheng cotton fell below the 16,000 yuan/ton mark last Wednesday, and this time it fell below the key support level of 15,500 yuan/ton, bringing a huge impact to the market.
Faced with Zheng Mian’s another dip, the mentality of all parties in the market is quite different. Some cotton-related manufacturing companies and trading companies are optimistic. This is mainly due to the sharp drop in futures prices and a large number of transactions at basis differentials, which provides support for the continued purchase and sale work. For some textile companies, raw materials can be purchased at relatively low prices, which facilitates their spread of production costs and provides an opportunity for short-term stocking.
Some trading companies and textile companies also said that the bottoming out of cotton prices will inadvertently cause problems for companies that sell cotton at a fixed price or for yarn mills that have already stocked up. There will definitely be a loss. Furthermore, if Zheng Cotton continues to fall sharply, it will inevitably cause downstream products to follow suit, and it will take some time until the profits of the entire industry chain are balanced again. This period will also cause the profits of some textile companies to shrink from existing orders. Therefore, Zheng Mian’s recent wide-ranging adjustments have made the mixed atmosphere of joy and worry among all parties in the market more prominent.
In the post-epidemic period, the market has become more cautious about the risks caused by inflation. In the process of making corresponding policy adjustments, various countries will more or less affect the cotton textile industry chain. It will definitely have an impact. Therefore, while closely grasping the current fundamental situation, we should also make response plans for other related factors, so that companies can gain more “joy.” </p
