Cotton: Purchase And Storage, Mitigation Of Impact, Resumption Of Work And Decision On Stimulus Policy

One

Risk release is in place.

Zheng cotton turning point leading the epidemic turning point

The impact of pneumonia on Zheng cotton is characterized as a false impulse of overcorrection and one step in place. Under the background of the developed Internet self media, there is no delay in spreading the epidemic information, and after repeated deliberation of a long holiday, the panic has reached its peak at the beginning. Then, the adjustment brought about by this extreme emotion is bound to be overcorrected. The plunge in one step is a common form of expression. The probability of a two dip is low after the low point appears.

Two

Increase reserves and hedge part consumption in the current period

USDA lowered China's consumption rate below market expectations

According to the monthly supply and demand report of USDA, the estimated global cotton output in 2019/20 is 26 million 417 thousand tons, an increase of 186 thousand tons from the previous month, an estimated consumption of 25 million 912 thousand tons, a decrease of 263 thousand tons from the previous month, a forecast of 17 million 880 thousand tons at the end of the year, an increase of 551 thousand tons from the previous month, an increase of 2.8% from the previous month. The reduction in consumption is mainly from China and Vietnam. USDA expects China's consumption to decrease by 217 thousand tons to 8 million 165 thousand tons, down from 500 thousand tons previously expected, and the US cotton Zheng cotton has not fallen. Pay attention to the hot spot "cotton USDA monthly report". At present, India and Pakistan have harvested cotton, locusts have no impact on the current cotton, Africa accounts for about 5%, India and Pakistan account for about 30%, and are concerned about planting in May next year.

Figure 1USDA monthly supply and demand

Source: USDA COFCO Futures Research Institute

After the holiday, in the face of a sudden outbreak of bad luck, the increase in the number of state reserves was partly offset by the decline in current consumption. In February, the normal consumption was 24 thousand tons / day, and on February 3rd -7, the number of incoming listing increased from 9000 tons per day to 18000 tons / ton, far exceeding the normal volume of 7000 tons / day before the festival. After the holiday, the total volume of the week was 65800 tons, more than the previous two months, and after the market stabilized, the number of wheels dropped to 7000 tons / day. The epidemic has led to an increase in the transaction of the purchase and storage. The current consumption decline is partly hedged by the purchase and storage portion. The later increment of consumption may bring a lot of expected deviations to the total consumption.

Fig. 2 cotton purchase and storage transaction

Source: COFCO Futures Research Institute

Three

Economic stimulus and resumption of progress determine room for growth

According to TTEB, the yarn load of China was 11.9% in February 7th, 34.8% before the festival, and 5% in Chinese grey cloth, 23.3% before the festival. According to online research, about 8 of the enterprises plan to return to work in mid and late 2. After 10, there are a small number of workers returning to work. 17 is another resumed node, which has been started by local staff at low load, and the field workers need to be isolated for 14 days. On the whole, the south is better, and the north is in strict control. The resumption of comprehensive work has been postponed for at least 2 weeks, and clothing sales have been suspended for 3-4 weeks.

Affected by the current epidemic situation, the country is afraid to stimulate the flow of personnel and dare not let go. Once the epidemic situation is controllable, loose monetary policy, positive fiscal policy and comprehensive tax reduction and tax reduction will follow, and the stimulus will exceed the market expectations. Because 2020 is the decisive year for building a well-off society in an all-round way, because the delayed economic construction will only be completed in the later time to complete the scheduled tasks, and the overall demand will increase in the second half of the year.

The epidemic has struck a blow to the enthusiasm of the US cotton fund, but it does not change the logic of the drive driven by the Sino US trade easing. The fund's bulls still have the upper hand, and net accounts for much less than the withdrawal. As of February 4th, the US cotton futures and options fund had more than 34936 net bills, accounting for 12% of the market, and there was still a lot of space near the historical high of 42%. The capital game in China keeps a close eye on empty and long money, and the empty goods have reached the limit. Time is good for many. As long as there is a continuous increase, it can be seen as the rise of the multi player game advantage. After the golden pits, a total of 50 thousand additional stocks (about 250 thousand tons of cotton) were accumulated, which appeared to be a sign of a comeback.

Four

Expected deviation

If there is a very low probability of misfortune, it will lead to deviation. At that time, domestic segregation will not be lifted, and consumption, exports and production will be subject to measurable blow. Loose policies will not be used. After the trade war bear market, cotton will be transferred to the new bear market.