Since early February, Zheng Cotton has begun a volatile correction. The price of the main CF2305 contract has fallen continuously from 15,275 yuan/ton to below the integer mark of 15,000 yuan/ton, 14,800 yuan/ton, and 14,500 yuan/ton. The confidence of cotton companies and speculators has been affected. The price of cotton futures in warehouses inside and outside Xinjiang has been continuously reduced, and basis price trading has not only become mainstream but also relatively active. Some textile companies/middlemen who have cotton replenishment needs after the Spring Festival have taken the opportunity to inquire and purchase prices.
On February 10, the basis price of “Double 28” (or Single 29) machine-picked cotton in Xinjiang’s regulatory warehouse dropped to 14,750-14,850 yuan/ton. Traders/futures companies have increased their resource listings and sales efforts. (Because the hedging rate generally reaches more than 70% or even 100%); while cotton processing enterprises in Xinjiang have reduced their quotations due to the decline in cotton futures, and the wait-and-see sentiment has increased.
As for the reasons why Zheng cotton peaked and fell this round, the author believes that it can be briefly summarized as follows:
First, although the quotations of cotton yarn have been rising after the holiday, the order situation of consumer terminals such as weaving, fabrics and clothing is lower than expected, and the benefits have been delayed. The problem of “intestinal obstruction” has emerged, the cost transmission is not smooth, and the pressure is backtracking. Second, the ICE cotton futures March contract dropped from 88.88 cents/pound to 83.07 cents/pound after the Spring Festival, resulting in a significant narrowing of the price difference between domestic and foreign cotton, and the pressure was transmitted to the domestic market; third, since January, with the increase of Zheng Cotton CF2305 The contract has opened the 15,000 yuan/ton mark and the progress of the 2022/23 cotton public inspection in Xinjiang has been accelerated. Zheng Cotton warehouse receipt registration and effective forecasts have grown strongly, and the pressure on Zheng Cotton’s real offer has increased. As of February 9, Zheng Cotton had 9,340 registered warehouse receipts (+303) and 2,852 valid forecasts (+490), bringing the total to 12,192; fourth, with the year-on-year increase in cotton processing volume in Xinjiang on February 8 It has turned from negative to positive, and the daily new processing has remained at 25,000-30,000 tons, a significant increase compared with the same period in 2021/22. Therefore, the industry has raised the cotton output in Xinjiang and the country in 2022/23 (some institutions predict that the total cotton output in Xinjiang will exceed 5.8 million tons), domestic cotton supply and demand pressure is rising; fifth, judging from the 2023 cotton planting intention survey released by some institutions, the decrease in cotton planting area may be significantly lower than the expectations of bulls and fund speculation.
So how big will the correction of Zheng Cotton be in this round? The author’s opinion is that there is a high probability that 14,000 yuan/ton will be tested, and the long and short sides may compete fiercely for 14,000-14,500 yuan/ton. From the survey, on the one hand, most machine-picked cotton processing companies in Xinjiang currently have lint in their warehouses. The cost is mostly around 14,000 yuan/ton, which provides certain support for Zheng cotton. On the other hand, the market is about to enter the “window period” of planting area, weather speculation and the introduction of monetary policy. In addition, the Fed’s interest rate hikes, USDA reports and other negative factors are gradually released. , ICE futures are expected to stand firm at 85 cents/pound and once again test the lateral support of the strong resistance level of 90 cents/pound. Therefore, Zheng Cotton has no motivation to make a deep correction and explore lows.
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