By the close of March 25, the quotation of domestic cotton futures main contract 2105 fell back to 14,890 yuan/ton, once fell to the lowest point since February 14,665 yuan/ton, almost giving up all the gains since February. However, Xinjiang cotton enterprises and cotton households did not suffer a bigger loss.
The cotton storm arose again. Domestic cotton futures under certain pressure.
By the close of March 25, the quotation of domestic cotton futures main contract 2105 fell back to 14,890 yuan/ton, once fell to the lowest point since February 14,665 yuan/ton, almost giving up all the gains since February.
However, Xinjiang cotton enterprises and cotton households did not suffer a bigger loss.
A futures company cotton field analyst told the 21st Century Business Herald reporter, before the Spring Festival, a large number of downstream cotton enterprises concentrated in Xinjiang to purchase and replenish inventory, Xinjiang cotton enterprises and cotton households have already locked in planting and sales profits. Even cotton enterprises in Xinjiang, which still have some cotton stocks, have avoided the risk of price fluctuations through short selling hedging in the futures market.
According to the above analysts, when cotton futures prices rose all the way to 17,080 yuan/ton in early February, many cotton enterprises in Xinjiang, through selling short of 16,000-17,000 yuan/ton, almost gained more than 6% higher than last year’s planting and sales earnings.
In the cotton fields of the futures company analysts view, xinjiang cotton enterprise and cotton are actively involved in the futures hedging operations, an important reason is that xinjiang cotton cultivation production continues to increase, coupled with the cotton price volatility, they have to hedge futures market as a new marketing channel path and locking in a profit.
The 21st Century Business Herald has learned that due to the high purchase price of cottonseed in 2020, the rush to harvest the downstream cotton ginning mills and the timely issuance of government agricultural subsidies, the intention of cotton planting in Xinjiang has increased significantly this year, and many farmers in Xinjiang have become more active in planting.
“At present, through holding seminars on futures knowledge and other forms, we guide cotton enterprises and cotton households in Xinjiang to increase hedging operations in the futures market, to provide a more comprehensive guarantee for the benefits of cotton cultivation.” A futures company official pointed out.
“Before the Spring Festival, many downstream enterprises in the mainland rushed to Xinjiang to buy cotton.” A cotton trader told the 21st Century Business Herald that, on the one hand, under the influence of the local holiday policy, the production volume of downstream cotton enterprises has increased sharply, and the demand for replenishing cotton inventory is extremely strong. On the other hand, the epidemic has made it difficult for many countries to deliver their apparel orders. A large number of global apparel orders have flooded into China, the first country to recover the supply chain, further boosting the demand for cotton.
In January this year, the China Cotton Association on the 12 provinces and municipalities and Xinjiang autonomous region of a total of 2,771 designated farmers cotton sales progress survey showed that near the Spring Festival, domestic cotton prices rise, cotton farmers are active in sales. As of January 31, the national cotton sales progress was 99.06%, 0.5 percentage points higher than that of the same period last year, according to the output of the investigated households and the volume of picking and selling. The average price of cotton sold was 6.7 yuan/kg, up 14.33 percent year-on-year and 3.08 percent month-on-month. Sub-region, Xinjiang cotton sale has ended.
In the view of the above cotton traders, this allows most cotton farmers and cotton enterprises in Xinjiang to avoid the roller coaster price of cotton futures since February.
By the U.S. department of agriculture cut in the monthly report of supply and demand at the end of 2020-2021 annual global cotton inventory forecast, as well as the continuous increase of the consumption and exports, trading and global inflation rising, the ICE cotton futures rose more than 10% since February, at its highest since the past two years, the main drive domestic cotton futures contract is a sustained rise from 15000 yuan/ton, hit their highs of 17080 yuan/ton.
However, the rising tide of cotton futures came quickly and went quickly. With the frantic replenishing of stocks by downstream enterprises before, which led to the high commercial inventory of the domestic cotton industry, the price of cotton futures began to fall from the end of February, and now basically gave back all the gains since February.
The 21st Century Business Herald reporter learned that during the sharp rise and fall of cotton futures, Xinjiang cotton enterprises hedge operation is quite active. For example, some enterprises in the vicinity of 16000-17000 yuan/ton to do short hedging, hedging scale more than 40% of this year’s sales; In addition, some cotton households carry out batch hedging operations, carrying out short-selling hedging operations at the prices of 15,000 yuan, 16,000 yuan, 16,500 yuan and 17,000 yuan per ton respectively, and the scale of each short-selling hedging operation accounts for 10%-15% of their planting quantity.
Analysts of the futures company said frankly that the cotton holding cost of cotton enterprises in Xinjiang is not low at present, about 16000 yuan/ton in southern Xinjiang, about 15500 yuan/ton in northern Xinjiang. Under the circumstance that downstream enterprises’ purchasing willingness is weakened due to high inventory, cotton enterprises in Xinjiang sell short to hedge against high prices through the futures market, which is a good way to hedge the cost of holding cotton and lock in the profit of planting and sales.
And, at present the cotton of xinjiang area base difference trades increase obviously.
The basis trade refers to the difference between the spot price and the futures price of a particular commodity at a particular time and place. As the futures market has the function of price discovery, the basis pricing on the one hand can more accurately reflect the latest changes of supply and demand of bulk commodities; On the other hand, enterprises can also carry out hedging through the futures market to avoid the risk of sharp price fluctuations on the basis.
According to the analysts, Xinjiang cotton companies used to mainly accept point and sheet trading, but as the increased price volatility of cotton increases the chance of buyers “breaking contracts”, they are now increasingly accepting basis trades.
The 21st Century Business Herald has learned that cotton traders are suffering from the ups and downs of cotton futures.
“During the rapid rise of cotton prices during the Spring Festival, many cotton traders chose to hoard supplies and wait for the rise to sell. “Now that cotton prices have fallen and downstream companies are less willing to replenish their stocks, how they will get rid of them is a big question.” The foregoing futures company analyst said.
Compared with cotton enterprises and cotton households, these traders in the cotton futures market hedging operations are more “fierce”. Many traders will be in the hand of lint inventory to do 100% hedging. The reason is that the current spot trading price of cotton is slightly higher than the futures price of 100-200 yuan per ton. Through the hedging operation, these traders can obtain the corresponding income, and then relieve the financial pressure of holding inventory continuously.
“With the May cotton season coming, we still have a chance to sell at a good price.” Afore – mentioned cotton trader tells a reporter. The current cotton storm did not have a substantial impact on the futures hedging and trading strategies of traders. What traders are most concerned about at present is whether other countries can repair the supply chain of the garment industry as soon as possible, leading to the backflow of garment orders to China. The second is whether the US fiscal stimulus package and the prospect of a strong economic recovery will trigger a return to rising inflation expectations, boosting prices for commodities such as cotton.
In addition to cotton traders to increase the strength of futures hedging, more and more investment institutions to overmatch the bulk commodity CTA strategy, but also invisible increase the activity of cotton futures trading, cotton traders, cotton enterprises and cotton households to create more diversified short hedging opportunities to lock in profits.
In this regard, Hao Gang, general manager assistant and head of the asset management department of Galaxy Futures, said that many investment institutions are currently supermanaging futures strategy, the reason is that it has a low correlation with other major categories of assets. According to the statistics of some institutions, the correlation coefficient between the CTA strategy of managed futures and the traditional stock and bond strategy is around 0.2, which is very low. It is a good variety for diversified allocation and risk diversification. Second, the performance of managed futures CTA strategy has been relatively stable and considerable over the years. Except for the return rate of about 30% last year, the average return rate of CTA strategy has been positive since 2012, reaching about 15% on average. The maximum retracement value in the recent 4-5 years is not more than 10%, which is a very small return retracement.
“If the cotton futures trade continues to be active and the price discovery function is increasingly enhanced, we can persuade cotton enterprises in Xinjiang and other regions to continue to increase futures hedging operations to avoid the risk of market fluctuations and at the same time broaden new production and marketing channels.” The person in charge of the above futures company pointed out.
(Author: Chen Zhi)