Favorable Policies: Countries Concerned About The Cotton Market Have Issued A Series Of Preferential Policies For Farmers

First, with the upgrading of cotton processing equipment and the construction of new factories in recent years, the overall processing capacity has increased, which will accelerate the cotton processing speed in Xinjiang in 2024 compared with previous years, bring new cotton to the market ahead of time, and give market pressure to the large processing volume ahead of time.

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Second, it coincides with the low demand season, and the downstream stock power is weak.

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Third, the market is generally worried that China's textile and clothing exports will be affected, driving down cotton prices.

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However, there are some poor expectations at present, which may become an important factor for cotton price rebound in the future, mainly including the remaining variables of overseas tariff increase measures, the growth impetus of domestic demand market and the backward movement of downstream replenishment.

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The growth of domestic output in the 2024/2025 crop season has been relatively certain, and it is less likely to continue to change significantly in the future. On the import side, due to the current lack of import profits and small quotas, it is expected that the import volume will decline significantly compared with the previous crop season, offsetting the increase in output. The actual inventory at the end of the period still needs to wait for the demand verification in the peak season. If the demand recovers, there is still the possibility of de stocking.

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In terms of external demand, the market is worried that China's textile and clothing exports will be impacted. If the United States decreases its textile and clothing orders to China, the corresponding purchase of imported cotton by downstream enterprises will also decline. In this way, the supply side and demand side of the domestic cotton balance sheet have basically the same reduction, so its impact on the inventory at the end of the calculation period is very limited, and more impact is on market sentiment.

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In terms of domestic demand, at the beginning of September 2024, the downstream orders were not recovered enough, and the weakness of "golden nine and silver ten" had begun to appear, and the cotton price fell accordingly. At the end of September 2024, China successively introduced a series of favorable policies, including interest rate cuts, reserve ratio cuts and stock mortgage interest rates, which undoubtedly promoted the growth of domestic demand, and cotton prices began to rise sharply. However, in the context of export demand concerns and output growth, all of this round of growth was given up. We believe that the first peak season after the introduction of favorable domestic policies, namely, the "three gold and four silver" after the Spring Festival, is worth looking forward to. At that time, the market will again focus on the recovery of domestic demand, which may drive up cotton prices.

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At present, the stock of raw materials is low. The traditional stocking season before the Spring Festival coincides with this round of falling cotton prices. Downstream enterprises tend to be conservative in stocking up, waiting for prices to stabilize. Before the Spring Festival, the logistics is close to being shut down. It is expected that the overall stock will be moved later, and there will be some pressure to replenish the stock before the peak season. In addition, near March, when an important domestic conference was held, the market began to expect the country to introduce a new round of favorable policies. If the market sentiment turns negative at that time, it will intensify the downstream stock heat and drive cotton prices up.