|Purchase prices of new seed cotton decrease compared to last year, and in Xinjiang, the purchasing volumes are still very limited, but ginners have their buying indication. The seed cotton prices in 2019/20 season and the theoretical cost of new cotton are analyzed.|
1. Seed cotton procurement in 2019/20 season
The harvests of seed cotton in 2019/20 season are 5-7 days later compared to last year. Till now, Shandong and Hebei has seen relatively large ginning volumes of upcountry cotton, while in Anhui, the volumes are still limited. In Hubei, most ginning factories plan to start operation in end Sep. In Turpan and Kashgar of Xinjiang, the picking is sporadic and most ginning factories will start during Sep 15 and Sep 20.
The following table shows the seed cotton prices in the beginning harvests period of 2019/20 season in major cotton procuring regions, and a comparison of prices and theoretical cost is made between 2019/20 and 2018/19 seasons.
In Shandong and Hebei, ginners have procured new seed cotton and operated for about 10-15 days. Currently, the purchasing volumes remain not large overall, and the largest purchasing volumes for ginners under operation are about 50 tons per day. Quality is mainly for grade-4, and length and strength is above 28mm and 28gpt. The grade-3 cotton has already arrived on the market, but the proportion remains limited. The purchase prices of seed cotton in inland decline by 1.2-1.4yuan/kg compared to the same period of last year, while cotton seed prices are higher. The theoretical costs of new cotton are about 4,000-5,000yuan/mt lower compared to last year, gross weight. The theoretical cost of new upcountry cotton is about 11,700-12,000yuan/mt, gross weight, and ginners see thin profits.
The scaled procurement of seed cotton has not kicked off in Xinjiang, and most ginners plan to start operation during Sep 15 and Sep 20. The moisture content of new cotton is relatively high, and till now, the sales of 2018/19 cotton are still unfavorable, leading to heavy looking-on mood on ginners. Based on the expectation of seed cotton prices, the theoretical costs of new cotton in Xinjiang are expected to be around 10,500-11,500yuan/mt gross weight, down about 6,000yuan/mt compared to the corresponding period of last year.
2. Expectation on new cotton
Viewed from the historical seed cotton prices, during the beginning period of arrivals, seed cotton prices are relatively high, and later, prices will move lower. Market participants also have the same expectation on the new cotton this year, so ginners stand on the sidelines currently. But as the cotton inventory of 2018/19 season is much higher than previous years, and downstream consumption is also dull, market players are not optimistic towards late market. Some ginners state that profits will be shrunk this year, and ginning volumes are expected to be smaller.
The theoretical costs of 2019/20 upcountry cotton decline by about 4,000-5,000yuan/mt compared to the corresponding period of last year, and that of Xinjiang new cotton are also expected to tick down. In addition, market players also hold not pessimistic anticipation towards the downstream consumption. Ginners expect a stable market in new season, and show no intention to stockpile.