Market Dynamics: From Liduo US Cotton Output To Likong US Cotton Price Support

According to the latest data of the U.S. Department of Agriculture, as of 7.21, the cotton quality rate in the main cotton producing areas of the United States had increased by 8% to 53% month on month, 7% higher than the same period last year, and the Texas quality rate had increased by 12% to 46% month on month. At present, American cotton is in an important growth stage, and soil moisture and cotton growth are important observation indicators, which affect cotton prices by affecting American cotton yield estimates. There is a certain inverse relationship between the abandoned rate of American cotton and the good growth rate. Therefore, when the good growth rate increases, it may drive the abandoned rate to decline, which will benefit the yield of American cotton and the price of American cotton. ICE cotton futures prices have been falling for five trading days since July 18. At present, they have fallen below the low point since June 17, falling below 70 cents/pound support.

The loose supply and demand pattern in the new year has laid the big background of bias. In 24/25, overseas cotton production is expected to increase, while Chinese cotton production is expected to increase, global production is expected to increase, and inventory at the end of the period is expected to accumulate. Among them, the inventory sales ratio of American cotton is expected to increase by 13% to 36% year-on-year, which is a relatively high level (since October/11, it is only lower than the level of 19/20). The loose basis puts pressure on the domestic and foreign cotton prices, which is driven downward.

It is expected to replenish inventory in peak season, and it needs to be observed to confirm or falsify. According to the law of previous years, the downstream demand is about to turn from weak to strong seasonally. If the neutral replenishment comes, it will benefit cotton prices. The marginal improvement of the downstream in the past two weeks is mainly reflected in the reduction of the inventory of finished products of the cotton yarn factory and the cotton grey cloth factory. The cloth factory just needs to drive the purchase of raw materials because of the low inventory of raw materials. However, it is reported that the enterprises mainly stock for the conventional inventory in autumn and winter, the new orders have not been scaled up, and the operating rate of the cotton yarn factory is still in a downward trend. Therefore, the improvement of the downstream is not obvious at present, The inventory of cotton yarn finished products also fell. In the next month, attention should also be paid to the marginal change of downstream demand. If the expectation of peak season is falsified, the downside risk of cotton price will increase. If the peak season comes, or the cotton price will be supported periodically, but the loose fundamentals and the medium term weak market will not change.

Downstream risks remain. Zheng Mian has dropped sharply since April, and now runs around 14000 yuan/ton. Although it has reached the level below the central level, it is still possible to decline in the future.

Downstream risks in the future mainly come from three aspects,

First, the import volume has increased significantly since this year, and the bonded area has high stocks waiting for customs clearance, so the sliding tax quota may be issued. If issued, the domestic supply may be increased in theory, or it may be bad for Zheng cotton. However, the quantity, issuing time and type of quota are uncertain, and the impact on Zheng cotton will be different;

Second, the sales progress of Xinjiang cotton is slow this year, and the commercial inventory of Xinjiang warehouse is higher than that of the same period last year. It is reported that there are still a large number of upstream post pricing unsettled, and the post pricing stop loss order may become the target of short sellers;

Third, although the external market fell sharply in the second quarter, and the expected increase of new products was traded in advance, and the price entered the undervalued area, it is not ruled out that after the listing of new cotton, the actual pressure of increasing production made the market hit a new low again, and the high internal and external price difference made the internal market valuation subject to the external market, and the quota issuance helped to converge the internal and external price difference. Zheng Mian has the risk of moving down to the external market.