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Strong supply and weak demand for raw materials, stable cotton prices, increased global inflationary pressure, rising expectations of the energy crisis and funds taking the opportunity to hype the rise of bulk commodities since October 2021. When cotton in the northern hemisphere began to be listed on a large scale, the cotton price rose against the trend and turned to oscillation and weakening after reaching a new high in recent 10 years. What is the market trend in the next step? Let's discuss it.

1、 International cotton prices soared and turned to oscillation

Since October, under the background of slowing macroeconomic growth, tightening monetary policy expectations and weakening domestic and foreign stock indexes, the futures market has become the main flow of capital, capital speculation and the international cotton price has soared. The main ice cotton contract once rose to 116.48 cents / pound, reaching a 10-year high and then turned to oscillation. As of October 29, 2021, the settlement price of the main contract of ice cotton futures was 114.85 cents / pound, up 12.91 cents / pound, or 12.66% month on month. The average price of the international cotton index (m), representing the average CIF price of imported cotton in China's main port, was 127.61 cents / pound, equivalent to 1% tariff, and the import cost was 20374 yuan / ton, up 11.38% month on month.

2、 Domestic cotton prices weakened after rising sharply

During the National Day holiday, there was rain and snow in Xinjiang cotton area, and the funds took the opportunity to hype. Zheng cotton futures opened the trading limit on October 8, and the reserve cotton was put into operation immediately after the National Day holiday to ensure supply and stabilize the market. The state strengthened the linkage supervision of the futures and spot market and strictly investigated the malicious speculation of capital. Most commodity markets represented by the black system fell sharply, and the cotton price weakened accordingly. As of October 29, 2021, the night settlement price of the main cotton futures contract in Zhengzhou Commodity Exchange was 21635 yuan / ton, a decrease of 1325 yuan / ton or 5.78% compared with the high point of 22960 yuan / ton on October 18. The s index of China's cotton purchase price representing the average price of grade 3 seed cotton and lint cotton in the main cotton producing provinces (regions) in China was 20614 yuan / ton, a decrease of 1319 yuan / ton or 6.01%.

3、 The price difference between domestic and foreign cotton and cotton yarn has expanded rapidly, and the advantage of domestic yarn has weakened

After the National Day holiday, the price difference of cotton at home and abroad has expanded rapidly, reaching more than 2000 yuan / ton, 205% higher than the average price difference of 857 yuan / ton in the past five years, making textile enterprises face huge cost pressure in the short term. At the same time, after the national day, the price of domestic yarn is more than 1400 yuan / ton higher than that of foreign yarn. In the past five years, the price of domestic yarn is 89 yuan / ton lower than that of imported yarn. The cost performance of imported yarn is outstanding, which has an impact on domestic cotton.

The second part is the analysis and prospect

1、 Global cotton supply and demand

（1） Supply side

1. Domestic cotton supply dynamics

Chen cotton inventory continued to decline. In September, textile enterprises actively implemented the energy dual control policy, the startup rate was generally reduced, the cotton demand was weakened, and the decline of old cotton inventory was narrowed. According to the data of China Cotton Association, at the end of September, the total turnover inventory of cotton in China was about 1066900 tons, a month on month decrease of 163200 tons, which was smaller than that of the previous month and lower than 282100 tons in the same period last year.

The central reserve cotton will continue to be put in to promote the smooth operation of the cotton market. According to the requirements of relevant state departments, the first batch of central reserve cotton will be put into production since October 8, with about 15000 tons per legal working day in principle. On October 30, the base price policy will be further optimized. With the continued supply of reserve cotton, textile enterprises have a large choice in raw material procurement, and it is difficult for domestic cotton prices to make further breakthroughs.

Xinjiang cotton picking more than half, the acquisition market cooling. As of October 29, the national progress of new cotton picking was 71.9%, a year-on-year decrease of 14.3 percentage points. The cumulative processing lint was 1.377 million tons, a year-on-year decrease of 476000 tons. This year, the slow progress of cotton harvesting and processing in Xinjiang is due to the tight flower collection team in Xinjiang and the high price of seed cotton, and the cautious acquisition of processing enterprises.

2. Trends of major cotton producing countries abroad

The maturity of American new cotton is backward, which affects the harvest progress. According to the data of the U.S. Department of agriculture, as of October 24, the cotton boll opening progress and harvest progress in the United States were 91% and 35%, respectively 4 percentage points and 6 percentage points lower than the same period last year, and 1 percentage point and 6 percentage points lower than the average value in the past five years.

The purchase of Indian seed cotton is in full swing, and the market price is higher than the lowest purchase price. The purchase of seed cotton in India is in full swing. The Indian Cotton Association expects that this year's Indian cotton output may remain at last year's level, about 6.12 million tons. CCI said that the recent market price is much higher than the minimum purchase price (MSP), which means that CCI does not need any market intervention this year.

The market volume of new cotton in Pakistan is close to 900000 tons. As of October 15, the market volume of seed cotton in Pakistan was about 890000 tons of lint cotton, an increase of 94% over the same period last year. Pakistan's national Ministry of food security and research said that Pakistan's cotton output is expected to reach the level of 1.58 million tons this year.

More than half of Australia's new cotton is sown, and the yield is expected to reach a new high. Cotton planting in Australia in 2021 / 22 is under way. Recently, affected by rainfall, some areas need multiple planting, but the soil moisture is extremely sufficient. The new cotton yield is still expected to reach 1.09 million tons or even higher, which may be the third highest level in history.

New cotton planting in Brazil is expected to increase. The cotton harvest in Brazil in 2020 / 21 has ended. Due to the rise of cotton price, the sown area of new cotton in Brazil is expected to increase. According to the prediction of Brazil national commodity supply company, the cotton planting area in Brazil is expected to increase by 10.2% and the output is expected to increase by 13.7% to 2.68 million tons in 2021 / 22.

3. The global cotton yield is expected to remain unchanged in 2021 / 22

Although affected by the epidemic situation and logistics, the progress of new cotton harvest in the northern hemisphere is slightly slow in the short term, the cotton growth in various countries is normal, and the global cotton yield is expected to remain unchanged. According to the estimates of international institutions, the output of Australian cotton, Pakistani cotton, American cotton and Brazilian cotton is expected to increase by 67.7%, 44%, 23% and 15% respectively. The predicted value of global cotton output in 2021 / 22 is 25.75 ~ 26.18 million tons, an increase of 6 ~ 7%, slightly 0.9 ~ 1.7% higher than the average level in the past five years. The global cotton inventory consumption ratio at the end of the period is about 70%, slightly higher than the annual average level.

（2） Demand side

1. Domestic cotton consumption trends

In September, the growth rate of domestic clothing consumption continued to decline. According to the data of the National Bureau of statistics, in September 2021, the year-on-year growth rate of domestic retail sales of clothing, shoes, hats, knitwear and textiles above the quota decreased by 4.8%, which was the second consecutive negative growth since 2021. The consumption rebound base in the same period last year was high, which had a certain impact on the market sales growth of this month.

In September, China's garment export maintained positive growth. According to the data of the General Administration of customs, in September 2021, the export volume of textile and garment reached US $29.132 billion, a year-on-year increase of 2.66%, ending the decline for four consecutive months and resuming growth, an increase of 18.81% over the same period in 2019. Among them, garment exports increased by 9.84% year-on-year, 13.34% over the same period in 2019. The current round of export Christmas procurement plan is ahead of schedule, and the rise in commodity prices is the main driving force driving the upward trend of garment exports in September. The market is still worried about later orders.

2. Foreign cotton consumption trends

US clothing retail sales increased and consumer confidence was insufficient in October. According to the data of the U.S. Department of Commerce, the retail sales of U.S. clothing and clothing accessories stores increased by 1.08% month on month and 22.5% year-on-year in September, partly due to the overflow of some back to school expenses in the United States from August to September, but the consumer confidence index fell to 71.40 in October, indicating that consumers are still worried about the current situation and Prospect of the economy.

EU consumer confidence continued to grow. According to EU data, the monthly consumer confidence index in the eurozone rose slightly from 117.6 to 117.8 in September, mainly due to the decline in the number of new crown infections, the increase in vaccination rate, the reopening of schools and people's return to the office, which increased consumer willingness.

Japan's clothing consumption improved month on month. According to the data of Japan's Ministry of economy, industry and trade, Japan's large retail clothing index rose to 52.8 in September from 45.5 in August, but it still fell sharply compared with last year and before the epidemic, down 5.3 percentage points compared with the same period in 2020 and 37.4 percentage points compared with the same period in 2019.

3. Global cotton demand outlook slows

Global cotton consumption is closely related to the economy. In the latest global economic outlook report, the International Monetary Fund (IMF) slightly reduced the global economic growth forecast this year by 0.1 percentage point to 5.9%, and significantly reduced the U.S. economic growth by 1 percentage point to 6%. The slowdown of economic growth means the decline of people's consumer demand. From the current performance of clothing consumption, consumption fluctuations in the United States and Europe are still large. Japan has not yet come out of the epidemic. After the release of holiday orders in advance, there is insufficient consumer confidence in the later stage.

（3） Environmental analysis and trend judgment

1. Global high inflation is becoming more and more intense, and the monetary tightening policy of the Federal Reserve is imminent

The U.S. Department of labor said that the number of resignations in the United States jumped to 4.3 million in August, the highest since December 2000. The labor participation rate fell 0.1% to 61.6% in September, driving up the wage level and increasing concern about inflation in the market. The consumer price index of the United States rose 5.4% year-on-year in September, reaching the highest level since January 1991. The consumer price index of the euro zone rose 3.4% year-on-year in September, a new high since September 2008. And the logistics congestion problem is serious. American logistics companies warn that the current port congestion problem is more terrible than the Lehman crisis. It reflects that under the influence of the epidemic, the intertwined contradictions of logistics congestion and high inflation led by the United States are difficult to resolve, forcing the Federal Reserve to tighten monetary policy.

2. Preventing inflation and stabilizing prices remain the focus of China's economic policy in the near future

According to the data of the National Bureau of statistics, in September, the national consumer price index (CPI) rose 0.7% year-on-year, down 0.1 percentage points from the previous month, and the industrial producer price index (PPI) rose 10.7% year-on-year, up 1.2 percentage points from the previous month. It shows that the middle and lower reaches enterprises are facing rising raw material price pressure. On October 19, the public security stepped in to check the coal price, and the national development and Reform Commission implemented intervention measures on the coal price according to law, which is the price intervention again in accordance with the price law since 2011 to guide the commodity price to return to a reasonable level. It can be seen that the determination and strength of the national macro-control are great.

3. Under weak demand, cotton prices will be repaired downward and connected with the downstream

According to the survey of China Cotton network in October, the current high price of raw materials has become the main difficulty encountered in operation. Downstream textile enterprises are difficult to accept the rising price of cotton raw materials, and most enterprises use the cotton purchased in the early stage. In addition, due to the recent reduction of orders and the promotion of energy consumption dual control power restriction policy, the startup rate of textile enterprises has generally declined. According to the survey, more than half of the enterprises reported that the startup rate decreased by 40 ~ 60%, and the proportion of enterprises with reduced orders for cotton yarn and cotton reached 38% and 42% respectively. If the demand side cannot provide effective support, the price may be repaired downward to solve the deadlock between upstream and downstream.

4. After the scale of new cotton is listed, the cotton market will be under pressure

Under the background of stable domestic cotton output, new cotton will be listed intensively in mid and late November, American cotton and Indian cotton will also gradually arrive in Hong Kong, and the market supply will reach the most abundant period of the year. Next, the sales pressure of new cotton will gradually appear, and the cotton market will be under pressure.

5. If price deviates from value, the market will eventually return to normal logic

From 2020 to 2022, cotton farmers in Xinjiang enjoy the support of the target price subsidy policy of 18600 yuan / ton, which ensures the stability of planting. Due to the promotion of machine picked cotton, the domestic cotton planting cost in China gradually decreases, which is expected to be no more than 13000 yuan / ton. Under the capital speculation, the current market price even far exceeds the planting cost and the target price level of 18600 yuan / ton. The price deviates from the value seriously. The capital speculation is very obvious. After the state increases the macro-control, the cotton market and price mechanism will return to the normal market logic.

Part III production, sales and inventory forecast

1、 In 2021 / 22, the global cotton output increased, and the production and demand level was basically the same

According to the global cotton production, sales and inventory forecast data of the International Cotton Advisory Committee (ICAC) in October, the global cotton initial inventory in 2021 / 22 was 2011 million tons, a month on month decrease of 550000 tons, a decrease of 2.66%, a year-on-year decrease of 2.04 million tons, a decrease of 9.21%; The global cotton output was 25.75 million tons, a month on month increase of 820000 tons, an increase of 3.29%, a year-on-year increase of 1.56 million tons, an increase of 6.45%; The consumption was 2590 tons, with a month on month increase of 30000 tons, an increase of 0.12%, and a year-on-year increase of 210000 tons, an increase of 0.82%; The ending inventory was 1.96 million tons, with a month on month increase of 240000 tons, an increase of 1.22%, a year-on-year decrease of 150000 tons, a decrease of 0.75%; The global cotton production needs 150000 tons, which is 790000 tons lower than that in 2020 / 21; The global cotton inventory consumption ratio at the end of the period was 77.07%, down 1.21 percentage points from 2020 / 21.

2、 Domestic cotton production and demand gap narrowed in 2020 / 21

Based on relevant special investigations and analysis of domestic and international economic environment and market conditions, the national cotton market monitoring system's forecast of domestic cotton production, sales and inventory in 2020 / 21 and 2021 / 22 continues the previous month's view:

In 2021 / 22, China's cotton output was 5.68 million tons, a year-on-year decrease of 4.54%; The consumption was 8.24 million tons, a year-on-year decrease of 4.3%; The import volume was 2.31 million tons, a year-on-year decrease of 15.90%; The ending inventory was 5.99 million tons, a year-on-year decrease of 4.59%; The production and demand gap is 2.56 million tons, 100000 tons narrower than that in 2020 / 21.

Main conclusions

To sum up, delta mutant disease continues to spread, global logistics congestion and high inflation are becoming more and more intense, the US Federal Reserve is tightening monetary policy, and global stock markets and commodities are cooling significantly. Domestic macro-control policies have been strengthened, cotton has soared rapidly, and the market has gradually weakened. With the gradual large-scale listing of new flowers in 2021, the cotton market will enter the most abundant time window of annual supply, downstream demand concerns continue, and cotton prices are returning to fundamentals.