Policy Stimulus To Meet Demand Shrinking Cotton Prices Fluctuate Or Will Continue To Intensify

The global outbreak of the outbreak of the new crown pneumonia has resulted in a global recession. Textile consumption demand has shrunk dramatically, and the textile manufacturing industry in various countries has been operating very hard. In order to alleviate the economic downward pressure brought by the new crown disease, many countries urgently issued a great economic stimulus policy. The policy stimulus and the shrinking demand will give rise to sustained large fluctuations.

First, the negative marginal effect of the epidemic is decreasing, and the outlook for cotton consumption is still worrying.

3 in late June, while the epidemic of new crown pneumonia was spreading rapidly, Russia and Saudi Arabia launched an oil price war, which led to a panic in global stock and commodity markets. Subsequently, in response to the global financial risks brought by the new crown epidemic, more than 60 countries, including the United States and Europe, urgently adopted interest rate cuts and pro active fiscal policy support. The rescue efforts and speed far exceeded the 2008 financial crisis. Since April, the major oil exporting countries have reached a preliminary agreement on the reduction of production during the G20 meeting. The growth rate of newly diagnosed cases in Europe and America has slowed down. The negative marginal effect of the epidemic has been decreasing progressively, pushing the global stock and commodity prices rebounding to varying degrees, and cotton is no exception.

Nevertheless, the outlook for global cotton consumption is still worrying. According to the US Department of agriculture data in April 2020, the global output of 2019/2020 was 26 million 499 thousand tons, an increase of 676 thousand tons compared with the same period last year, and consumption of 24 million 77 thousand tons, down 2 million 115 thousand tons compared with the same period last year. We believe that the US Department of agriculture's reduction in global cotton consumption is relatively conservative. During the 2008 financial crisis, global cotton consumption fell by 2 million 950 thousand tons over the same period, much larger than the current year-on-year reduction. The negative impact of the current epidemic on global cotton consumption is greater than that during the financial crisis.

According to a survey conducted by the Federation of international textile manufacturers from March 28th to April 3rd, orders for textile enterprises around the world were largely canceled or postponed, and orders fell by 31% on average worldwide. The uncertainty of the duration of the new crown disease brought heavy pressure to the industrial chain. India, Pakistan, Vietnam, Bangladesh, Indonesia and other Southeast Asian textile manufacturing bases were severely affected. Damage.

Europe, America and Japan are the main force of global textile consumption, and mainly cotton textiles. The impact of the epidemic on the textile consumption market in Europe and the United States mainly includes two levels, one is the direct impact caused by the epidemic prevention and control measures, mainly including the logistics restriction and the interruption of the textile business, and the two is the indirect impact caused by the epidemic, including the economic recession, the decline of the income level and the increase of the unemployment population. This will cause global cotton consumption to recover in a short time.

India, Pakistan, Turkey, Bangladesh, Vietnam and Indonesia are the main producers of textiles. There are many uncertainties in the epidemic prevention and control work in these countries, especially in terms of detection ability and medical level. The number of actual cases may be far greater than the official figures. The continued spread of the epidemic and the shrinking demand for textile products in the world have made it difficult for textile producing countries to operate. India Garment Manufacturers Association said that if there is no government support, India textile industry may lay off 10 million people. As the epidemic continues, it is expected that more and more textile enterprises will face bankruptcy, and even lead to a large disruption of the global textile industry chain, and its impact on global cotton consumption will be incalculable.

Two, China and the United States intend to stabilize cotton planting, and cotton supply is ample in the new year.

In March 26th, the national development and Reform Commission and the Ministry of Finance jointly issued a notice on improving the target price policy of cotton in Xinjiang. The announcement pointed out that in order to implement the spirit of the Central Document No. 1 in 2020 and approved by the State Council, the target price policy of cotton will be improved in Xinjiang from 2020. The target price level will be 18600 yuan per ton, once every three years, and the target price level will be adjusted according to the assessment results. In March 31st, the national cotton market monitoring system survey showed that in 2020, China's cotton planting area was 45 million 501 thousand mu, a decrease of 5.1% compared with the same period last year, of which Xinjiang's intention to grow cotton was 34 million 759 thousand mu, which was only 1.6% lower than the same period last year.

Since April, new cotton planting has started in the northern hemisphere. According to the report issued by the US Department of agriculture, in 2020, the US cotton planting area was 13 million 700 thousand acres, a decrease of 1% compared with the same period last year. The land cotton area was 13 million 500 thousand acres, a decrease of 1% compared with the same period last year, and the area of Pima cotton was 228 thousand acres, a decrease of 1% over the same period last year. According to the United States Department of agriculture statistics, as of April 6th, the new cotton seed sowing schedule was 7%, an increase of 2% over the same period last year and five years.

In view of the relatively stable cotton planting intention of the two major cotton producing countries in China and the United States, the global cotton consumption has shrunk dramatically. The global cotton supply is expected to be more abundant in the new year and a great pressure on cotton prices.

Three, policy stimulus to meet the demand downturn, cotton prices will fluctuate or will continue to intensify.

During the financial crisis in 2008, ICE cotton prices and Zhengyang cotton main contract fell to 38.45 cents / pound, 10080 yuan / ton respectively. Since the outbreak of the outbreak of the epidemic this year, the price of ICE cotton and zhengmian main contract fell to 48.35 cents / pound, 9935 yuan / ton respectively. From the perspective of consumption demand, the impact of the current epidemic on cotton consumption demand is greater than that of the 2008 financial crisis. From the policy point of view, the current financial and industrial policies promulgated by various countries are faster than the 2008 financial crisis. From this level, the current epidemic does not necessarily lead to the ICE cotton futures price falling to its low point in 2008. The big economic stimulus policy and the failure to resume normal consumer demand in the short term will spur a sustained and volatile market. This fluctuation will be particularly severe in the important window period of cotton production.

Four, domestic cotton production and marketing forecast

The current production and demand forecast is to reduce consumption from 100 thousand tons to 7 million 33 thousand and 600 tons in 2019/20, with a corresponding increase of 100 thousand tons to 6 million 205 thousand and 400 tons at the end of the term.