Market Dynamics: Sudden Cotton Boom Due To Production Reduction

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Affected by the news of production reduction, cotton futures rose sharply today. The main contract of 09 rose by 6% in intraday trading, reaching a maximum of 16465 yuan/ton. The cotton warehouse increased by 53000 hands, with capital inflow of 1.176 billion yuan.

The options market was even more crazy. The cotton CF2307C16200 option contract soared 200 times in one day, and other contracts rose more than 100 times in one day.

How much profit cotton can meet! Production reduction has gradually become a consensus

On the news side, the cotton planting area in Xinjiang has been reduced in the new year, and the influence of weather factors has triggered the market's concern about the supply side of the new year. It is reported that the discussion on cotton yield reduction has gradually become the consensus of the market. Some analysts believe that the area of Xinjiang will be reduced by 10%, and the unit yield will be reduced by 5%. The cotton in Xinjiang may face the pressure of 14% - 15% yield reduction. In addition, a large number of information about goods sweeping from enterprises came out of the market. Huafang cotton yarn has been selling well recently, and Xinjiang Tianhong has swept a lot of goods.

Secondly, the domestic cotton planting area has declined significantly

The Ministry of Agriculture and Rural Affairs released the analysis on the supply and demand situation of China's agricultural products in May 2023, and predicted that the cotton planting area in China in 2023/24 would be 28.72 million mu, a decrease of 1.28 million mu compared with the previous year. At the same time, due to the backward seeding progress of Xinjiang cotton in the new year, after the reduction of cotton planting area, the concern of production reduction in the new year increased. At the beginning of the month, the northern Xinjiang region ushered in the weather of cooling, rainfall and snow, which caused the market to worry about the supply side of the new year.

Finally, cotton demand in the international market is improving

According to the data of the US Department of Agriculture, the global cotton production, sales and stock forecast in 2023: the global cotton production in 2023 will be 25.19 million tons, down 0.57% year on year; the global cotton consumption will be 25.31 million tons, up 6.02% year on year, and the gap between production and demand will be 120000 tons. But the market pays more attention than the small gap in the long term.

Cotton once again exceeded sixteen thousand. The market is spreading everywhere that Xinjiang is in short supply of cotton and in short supply. The whole market is readjusting the balance sheet. At present, it is determined that there will be a gap in cotton by the end of September at the latest. Huafang cotton yarn has recently sold well, and Xinjiang Tianhong has swept a large number of goods. The news can be described as spectacular.

How will the future market go? The agency recommends maintaining caution

Looking forward to the future, how much space is left for cotton futures prices to rise continuously. Cotton is the most industrial agricultural product, which also contributes to the price elasticity of cotton. The main operating range of domestic cotton is [1250018500], which has been used for about 80% of the time in the past 10 years. The simple intuition driving its upward trend is to reduce production, but each time the big market of cotton is inseparable from the macro background of pricing inflation, and the downward trend is mainly driven by the macro downward pressure. Therefore, there is a possibility that the increase of 2000 yuan/ton has accounted for the production reduction by a large margin. If there is no supply side disturbance, the current cotton price may be in the range of 13700-14500 yuan/ton.

Under the expectation that the domestic economy is improving, new cotton production is reduced and consumption is improving, cotton prices in May showed an overall upward trend. However, with the stabilization of new cotton planting, the interference of weather factors gradually weakens. Due to the influence of high temperature and traditional off-season in the downstream, textile enterprises may start down. The cotton market fluctuates greatly, and the wait-and-see mood in the downstream increases. At the same time, the trend of demand entering the off-season will become more obvious. The cotton price may recover after this adjustment, but the increase is limited. It is expected that short-term cotton prices will remain volatile, focusing on downstream demand and macro risks