Excess Liquidity Supports High Price Of Zheng Cotton

Futures daily news in November 5th, since this year, international agricultural products have been rising, among which cotton is in the first place, while China's cotton foreign dependence is around 1/3, and international cotton prices boost domestic cotton prices, which makes it difficult to get rid of the impact of the global price of agricultural products.

Whether it is from global cotton investment demand, industrial and jewelry demand or global

Risk aversion triggered by global economic uncertainty will support demand for commodities including cotton.

In the US, the Obama stimulus policy may have some support for the economy, but it has not changed the slowdown of the real economy in the United States; the European debt crisis has not yet been completely resolved.

Meanwhile, Germany's economic growth began to decline in the three quarter, and the euro zone economy remained weak.

The outlook for the global economy remains uncertain. Investors' risk aversion needs to boost cotton prices to new heights.

Loose policy and weak dollar will also push cotton prices up.

In the short term, there is no inflationary pressure on the US, and the Fed has more room to keep interest rates low.

In addition, the launch of the two quantitative easing in November 3rd is also expected to keep the US dollar vulnerable.

Other governments, except the US, are likely to maintain a loose monetary policy in the fourth quarter.

Therefore, in the context of the continuation of the policy of easing and the weakness of the US dollar, cotton prices will be supported in the future.

From the gap between supply and demand, according to the US Department of agriculture, China's supply and demand gap reached 3 million 483 thousand and 600 tons in the past 10 years, an increase of 217 thousand and 700 tons compared with the same period last year, an increase of 6.66% over the same period last year.

The gap between supply and demand in 2009 was 3 million 265 thousand and 900 tons, an increase of 1 million 676 thousand and 500 tons over 2008, an increase of 105% over the same period last year.

Despite the decline in global and Chinese inventories, the severity of the situation is not as severe as in 2009, and the growth rate of supply and demand gap is much better than that in 2009.

Therefore, the basic support cotton price is further higher, but the rate of increase will obviously slow down.

The only country with surplus production in the world is the United States. In the past ten years, the gap between supply and demand in the United States has been negative, reaching -291.75 million tons in 2010, and a surplus of 1 million 3 thousand and 700 tons over 2009.

Therefore, China's supply and demand gap needs to be filled by importing cotton from the United States, which imports about 25% of China's total cotton per year.

Therefore, the price of American cotton is likely to rise because of the promotion of the price of national cotton, and the price of American cotton will in turn become the bottom line of the high price of national cotton.

In the different stages of market interpretation, there are three characteristics throughout: first, the spot price rise of cotton is ahead of the futures price, and the spot price is higher than the futures price at most time periods; two, the US cotton price rises more than the domestic cotton price, the annual average value of cotton price difference between home and abroad is lower than that of previous years; three, the cotton yarn price is closely linked with the cotton price, and the price difference is the highest level in the past 17 years.

The three price differentials mentioned above are the key to reflect the rationality of the market: first, the upstream and downstream spreads.

Historically, the price difference between cotton KC32S and cotton is often between 5000 and 6000, which is the price difference level of textile enterprises in the low profit period.

In the current cotton bull market, this price difference is mostly between 7000 and 10000. The high profit textile enterprises inevitably expand the cotton consumption demand and drive the cotton price to go up.

At present, the price difference is 6000. Even if the cost of labor and electricity is increased, the textile enterprises will not lose money at this price difference. Two, the price of cotton is low.

Historically speaking, because China is the first largest consumer and the largest importer of cotton, domestic cotton prices are often higher than the price of imported cotton at around 1500 yuan, which is also in the range of this price difference. This determines that the country's ability to regulate cotton prices through the issuance of import quotas is weakened. At the same time, the price difference between domestic and Southeast Asian cotton textile competitors is within reasonable limits, and domestic cotton yarn demand will not be replaced in large quantities; three, the current price difference.

It is understood that the current spot price of 30 thousand yuan / ton, and futures prices roughly the same.

According to the author's research on cotton producing areas, cotton production has been significantly reduced this year (10% - 20%), and more than three of high-grade cotton in the mainland can be reduced by more than 50%. The warehouse producers who represented by Hubei cotton merchants are hard to provide large quantities of warehouse receipts this year, so the futures contracts are difficult to be delivered at a price higher than that in the spot market in recent months.

The above three points determine that the strategy of the hedging party can only be bought.

Of course, if these three spreads change, the market will react.

At the present stage, on the one hand, the effect of cotton price rising is slowly pmitting to the terminal retail industry. Compared with the boom of cotton, the retail price of terminal clothing is not increasing at present. As time goes on, the cost pressure will eventually be shown on brand dealers and retail channels, and the price of clothing will inevitably rise.

This will inevitably affect the terminal demand, causing clothing manufacturers to reduce production, and the demand for cotton yarn and grey cloth is gradually decreasing.

From the supply side, new cotton has been listed this year. Cotton output has been determined in the year. Cotton growers will determine the planting scale next year according to the cotton price this year. If cotton prices continue to rise, next year's planting area may increase.

From the lower reaches of the industry, large cotton spinning enterprises still have a certain amount of cotton stock, but most production enterprises have stopped purchasing cotton, and most of them are dealers.

If the future dealer's change in cotton prices is expected, it will also lead to a fall in cotton prices.

On the other hand, although cotton prices have increased considerably this year, cotton farmers have not received substantial benefits, and the cost of seed cotton will not be significantly reduced in 2011. It is estimated that there will be no marked improvement in cotton growers' willingness to grow cotton in 2011.

Therefore, the domestic grain area will not increase significantly, thus determining the domestic cotton production is difficult to improve.

From the perspective of external supply, India and Pakistan's export restrictions on cotton can not be lifted in the short term, making China's import of US cotton as an inevitable option.

According to the latest report on supply and demand balance of world agricultural products, the US cotton production reduction in 2010/2011 will be a big probability event. Therefore, the import price increase factor imported from US cotton will continue to exist in the coming period.

The tight supply and demand situation of cotton will still support cotton prices in the future.