USDA Acreage report issued, Sino-US top-level meeting releases good news
USDA Acreage report issued, Sino-US top-level meeting releases good news

USDA Acreage report issued, Sino-US top-level meeting releases good news

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Two events at the last weekend happened to influence the cotton prices. One was the top-level meeting between Chinese President Xi Jinping and U.S. President Donald Trump for much anticipated talks on the future of China-U.S. relations and their trade frictions. Another was the yearly Acreage Report released by USDA. The two events boosted the market confidence somewhat, and gave some space for orders depressed by nearly two month’s downtrend. The Sino-US trade negotiation, in particular, was favorable for the Chinese consumption anticipation. The resistance for the price was to see the recovery of buying interests.

Top-level meeting releases good news
On Jun 29, Chinese President Xi Jinping and U.S. President Donald Trump had a meeting for much anticipated talks on the future of China-U.S. relations and their trade frictions, according to Xinhua News. The U.S. side said it will not add new tariffs on imports from China. The two countries' economic and trade negotiating teams will work on specific issues. Though the previous tariffs have not been cancelled and no confirmed agreement was seen, the news was still good for the industry. The extreme market situation in May and Jun caused by macro aspect has been eased and recovered somewhat.

Barring the recovery of macro aspect, feedstock inventory in weaving plants was at nearly 3 year or 4 year low level, and they continued to cut operating rate or turned to produce high-count products. For product inventory, spinning mills already have effects. Though yarn prices have been constantly decreasing, the decrement has slowed down gradually when Zhengzhou cotton futures market started to rebound. For fabric plants, fabric inventory kept accumulating though operating rate was cut. For the cotton textile industrial chain, with enormous plants and fierce competition, spinners and weavers mostly run with product inventory. With better anticipation and higher feedstock prices, speculative inventory or processing will increase, good for the upstream market.



Currently, spinners face deficits to process cotton yarn, which influences the buying interests. In terms of the spot profit of cotton yarn 32S based on CCFGroup Index CY C32S, Chinese cotton 3128, and the trading price of reserved cotton, the deficits are seen. As of Jun 28, the profits of C32S based on 2018/19 grade-3128 cotton were -692yuan/mt, that of C32S based on reserved cotton was 31yuan/mt. When the increment of feedstock prices is larger than that of downstream products, scaled enterprises have the ability to conclude orders, while small scaled enterprises have to wait for the opportunity. It was heard that in weaving sector, orders have the signal to transfer to the scaled enterprises, who can give a better price and stable quality under the sell-off situation.

The good news from the Sino-US trade negotiation was favorable for the international market, and the Zhengzhou cotton futures and ICE cotton futures are the basis for Xinjiang cotton and international cotton. ICE cotton futures market stabilized first under the support of buying from Southeast Asia, while Zhengzhou cotton futures market rebounded driven by lower trading proportion of reserved cotton, narrower price spread between domestic and foreign cotton, lower yarn inventory and the release of sliding-scale duty quotas. Inquiries and sales of imported cotton have improved somewhat, and prices of cotton quotas under 1% tariff declined. Moreover, with the bullish anticipation, China is likely to procure US cotton or reserve US cotton into state warehouses. In short run, price spread between domestic and foreign cotton is still likely to narrow.

The better anticipation on macro aspect may lead to the recovery of consumption, and the influence of cotton supply structure change on consumption shall be noted. Especially at present, reserved cotton is the best choice for spinners to make profits, and orders tend to transfer to scaled enterprises, then the reserved cotton that with smaller quantity will move to scaled enterprises gradually. Cotton prices may tick up shortly, while the uptrend will be supported by the fundamental finally. The recovery of cotton products is the key.

Therefore, if cotton prices go up faster than yarn, it is not good to consume cotton.

Acreage of US cotton is revised lower than anticipated

(1,000 acres) 2019/20 2018/19
Planting intention Planted areas Change Harvested areas
Upland cotton Alabama 510 510 0 97.50%
Arizona 155 155 0 99.40%
Arkansas 580 580 0 99.00%
California 40 40 0 97.90%
Florida 90 120 30 79.50%
Georgia 1350 1350 0 91.30%
Kansas 170 185 15 92.10%
Louisiana 260 260 0 96.90%
Mississippi 680 700 20 99.20%
Missouri 380 370 -10 99.10%
New Mexico 70 70 0 72.70%
North Carolina 470 460 -10 96.50%
Oklahoma 720 720 0 70.50%
South Carolina 290 300 10 91.70%
Tennessee 360 370 10 98.60%
Texas 7300 7150 -150 56.10%
Virginia 100 105 5 99.00%
All upland 13525 13445 -80 71.90%
Pima Arizona 8 11 3 100.00%
California 225 240 15 99.50%
New Mexico 8 7 -1 100.00%
Texas 14 17 3 97.20%
All Pima 255 275 20 99.40%

According to USDA’s Acreage Report, all cotton planted area for 2019 is estimated at 13.7 million acres, 3 percent below last year. Upland area is estimated at 13.4 million acres, down 3 percent from 2018. American Pima area is estimated at 275,000 acres, up 10 percent from 2018. The harvests of 2018/19 US cotton have limited influence on the market, and currently, the 2019/20 US cotton planting areas and yield will mainly influence the ICE cotton futures. According to USDA, the sowing areas of upland cotton are projected to reduce by 80,000 acres, below 30kt, which poses little impact on the market. Later, pay attention to yield.

Summary
The good news at the weekend gives the upward momentum to cotton prices, but it still needs time for downstream market to follow up, which is related to the consumption of cotton. The consumption is expected to reduce, and cotton market needs de-stocking. Currently, it is expected that cotton prices may push up and then fall down periodically.

Πηγή: ccfgroup.com

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