When Will The Domestic Cotton Market Price Bottom End?

If there is no definite understanding of the related industries involved in the variety, the participants in the market will generally take the typical textbook formula of "low purchase and high sale", and make corresponding transactions according to the prices given by the market. There is no doubt that the operation at low positions sold at a high level has a certain margin of safety and potential profit. However, this consensus has encountered a rollover in the cotton market this year, especially in the past three years, below the shock interval, and below 14500, that is, the cost of China's North Xinjiang cotton picking machine. However, the price of Zheng cotton has been down for three times in the more than 50 days running at a relatively low level for a long time, but there has been no time limit.

The collapse of the bull market comes first from the weak demand side, which has not yet been significantly improved. Judging from the recent cotton spot market, the domestic cotton yarn market is rather light, and the local preferential price is shipped. Most of the cotton mills are in a state of loss, followed by a majority of suspension and holidays. The purchase and purchase of raw cotton is mainly based on rigid replenishment. From the finished product inventory data of cotton textile industry, the number of yarn stocks in China in July 2019 was 22.1 days, although the early stoppage and reduction in stock prices achieved significant results, which was 4.85 days lower than that in June, but the number of days in storage was much higher than that in the past three years, an increase of 5.44 days compared with that in the previous three years. The gray fabric plate continued to accumulate from April, and the number of grey fabric storage days in July was also much higher than that in the past three years, which increased 5.7 days compared with the same period last year.

Secondly, from the planting situation of the three largest cotton producing countries in the world, the planting situation in the US, China and India, the signs of good supply side in 2019/20 also made the bull lose the opportunity of weather speculation. As of July 29th, the excellent and good rate of the United States cotton was 61%, the ring was better, and the planting conditions were higher than that of the same period last year. With the US cotton planting area and seed abandonment rate landing, the late USDA report may have the possibility of increasing cotton yield per unit area and increasing yield. Domestic cotton cultivation in Xinjiang is also thriving. Although the limited water and land policy has brought about a decrease in a small area of planting this year, because cotton is more suitable for planting in Xinjiang than wheat and corn and is supported by direct subsidy, farmers' willingness to grow is not obvious.

In addition, according to the report of the China Cotton Association, the comprehensive climate suitability index for cotton growing areas in China is more suitable. Compared with 2018, the average cotton yield per unit area in China is flat year. India, another big cotton producing country, is also facing the expected falsification of production. As of July 26th, 10 million 895 thousand and 100 hectares of cotton had been planted in India, an increase of 1 million 259 thousand and 100 hectares over the previous week, an increase of 643 thousand and 500 hectares compared with the previous year, representing an increase of 635 thousand and 500 hectares over the same period in the past 5 years. Although the onset of the monsoon in the India Peninsula has been postponed this year, it has led to the fact that precipitation is not as good as normal in the early stage. However, with the recent rainfall follow-up, it has alleviated the drought effect to a certain extent.

With the cotton textile industry demand fatigue state recognition, and at the same time due to the falsification of production expectations, in recent months, the 09 contract once gave more than 1000 points of the basis of the discount rate, in the supply and demand at both ends of the expectations have been traded, Zheng Mian has already built a double bottom from the graph, short term rise power is insufficient, and the downward space is limited. But we can see that the marginal impact of trade friction related emotions is weakening. Trump has injected inconstant characteristics in his commercial character, and the relationship will not get better overnight, nor will it deteriorate beyond expectations.

The more the market recognizes this, the more it will be desensitized to the relevant news. In the past two weeks, there has been dynamic news about market sentiment. However, Zheng cotton has only slightly risen to pay tribute. In addition, the real impact of trade friction on cotton supply and demand is not yet fully understood by the market. The market still regards the deterioration of relations as the main culprit of the domestic cotton textile industry. But the US Department of Commerce's data gives a different perspective. In the wake of the loss of US cotton textile orders, the latest updated data in July showed a major reversal. In all the global cotton and cotton textiles, China's merchandise restarted to a 29% high share.

This brings us an anti consensus thinking for our research work, which makes us increasingly feel that trade friction is only the superficial reason for the sluggish demand of cotton textile industry. The deeper reason is not yet fully traded by the market, and the recovery of demand may be far less than expected. Instead, the expectation of "purchasing cotton and cotton" is becoming a bad real hammer. In the short term, as the mood stabilizes and rebounded, Zheng cotton's bottom road is again opened.