Organic in Danger and Organic in Danger: Analysis and Prospect of Cotton Situation in 2019

Overall, in terms of the overall pattern, it is considered that there is a chance of large fluctuations in cotton prices in the next 19 years. With the completion of China's reserve and dumping, the global planting area must maintain a high level and high price in the long run to maintain large supply and demand. In 18/19, there may be new variables in the region's output and demand. In 18/19, the global total supply of cotton is not scarce. The future logic is that China needs to get resources from abroad to achieve internal and external balance. From the macro point of view, the negative impact of Sino-US trade war friction and the downward pressure of the global economy have increased vigilance and macro-weakness. The fundamentals will be more affected by the weather next year, which will be triggered by many potential favorable factors. From the perspective of trading strategy, It is believed that there are opportunities to operate from different trading entities. Under the condition that the futures price drops sharply, we can try to do more at the lowest price and higher at the margin of safety. It is believed that if the trade war does not deteriorate, the low point of time will be in December and January, and the spot pressure will gradually improve after March. If the trade war turns better, it will be considered as a process of rebounding from the bottom to the bottom, with the first half of the year's oscillation range (14000-16000). If the Sino-US trade war worsens and the macro-crisis emerges, Zheng's cotton price will reach a bottom of 13,000 again.



Fundamental analysis of cotton supply and demand



(1) domestic supply and demand analysis for four consecutive years < br /> in the context of de-inventory


Main points of analysis:



1. China's cotton production has been increasing for four consecutive years, mainly in Xinjiang.



2. Consumption started in 2016 and gradually increased, but from the second half of 2018, consumption gradually decreased. It is expected that consumption will return to the level of 2017 in 18/19. Mainly affected by the Sino-US trade war and the Federal Reserve's interest rate increase, the economy and consumption declined.



3. The annual production and marketing gap in 18/19 is 2.4 million tons, which is the smallest one in four consecutive years. It is expected that the supply can be met without the need for state dumping.



4. In the future, China's shortage will mainly be met by imported cotton. In the future, the number of imported cotton will gradually increase every year.



(ii) Global Cotton Supply and Demand Fundamental Analysis



Main points of analysis:



Global production in the first 18/19 years was not satisfactory, with a reduction of 1.07 million tons compared with last year, rewriting the situation of high production in the past year.



2. Consumption is expected to decline year-on-year. USDA data in December adjusted only 500,000 tons. It is expected to further reduce in the later period. China expects to reduce consumption by 1 million tons, other countries by 1.7 million tons and consumption by 2.7 million tons.



3. Global end-of-period inventories are gradually declining.



4. China's newly dumped 2.5 million tons + 17/18 annual production and sales surplus of 116,000 tons, a total of 250+11.6 = 2616,000 tons of inventory, moved to 18/19, so based on the current static consumption, the global resource supply and demand surplus in 18/19 is = 2616-150 = 1116,000 tons, still not short of cotton, if the later consumption is further reduced, it will reflect a more abundant supply in 18/19.



Summary of Global Supply and Demand Balance Table



The global production-sales gap in the first 17/18 year was a slight surplus of 116,000 tons in the supply balance, down 318,000 tons (434,000 tons in July) from the expected level in July. In China, 2.5 million tons of dumped reserves were traded. China's inventory will be transferred to 2616,000 tons of international stock, resulting in high international end-of-term inventory. In addition to the quota issued by China, China's industrial and commercial circulatable stock in the fourth quarter was more than 3 million tons, and the supply was sufficient.



In December of 18/19, the expected global production-sales gap is -1.59 million tons, up by 500,000 tons on the basis of July's forecast. If the excess supply of 2616,000 tons of cotton in 17/18 is taken into account, then the supply-demand gap in 18/19 will be abundant with a slight surplus of 111.1%.Sixty thousand tons, no shortage of cotton.



3. In 18/19, the output of USDA predicted a reduction of 1.07 million tons, mainly based on the unsatisfactory output of the United States, India, Pakistan and Australia. The output reduction was increased by the United States and India, Pakistan and Australia, while that of China was reduced by 100,000 tons. Among them, China's output is expected to increase slightly to 50-5.2 million tons last year, especially Brazil's output increase of 450,000 tons this year. As a bright spot, China is delighted with the increase of the area of the United States, the loss of unit yield is great, India reduces the area, and China increases the area and reduces the unit yield, so the overall global output this year is unsatisfactory compared with the past two years, and declines.



4. Regarding global consumption, we expect to increase gradually. We mainly forecast that consumption in Southeast Asia will increase, especially in China, India, Vietnam and Bangladesh. But in December, we forecast that consumption will decrease by 500,000 tons compared with July. We expect that there is still room for consumption reduction, especially in China.



Transaction level analysis



1. In recent years, a large number of enterprises in the cotton industry chain have paid more and more attention to futures, and their professionalism is also increasing. They have basically participated in the futures market. The customers of the cotton industry mainly hope to sell hedging on cash basis, which is a natural short position of cotton. In recent years, the development of the team is very rapid and huge, which can not be ignored. Even many financial companies have joined the futures market. The team, the combination of virtual and physical investment, cotton industry chain downstream textile mills natural multi-head participation in futures is very few, then investment institutions have become a powerful opponent of industrial customers, mainly to do more unilaterally.



1. In recent years, a large number of enterprises in the cotton industry chain have paid more and more attention to futures, and their professionalism is also increasing. They have basically participated in the futures market. The customers of the cotton industry mainly hope to sell hedging on cash basis, which is a natural short position of cotton. In recent years, the development of the team is very rapid and huge, which can not be ignored. Even many financial companies have joined the futures market. The team, the combination of virtual and physical investment, cotton industry chain downstream textile mills natural multi-head participation in futures is very few, then investment institutions have become a powerful opponent of industrial customers, mainly to do more unilaterally.



2. Zheng Mian's position is not expected to be on the low side in the future. The main reason is that there are more strategies to be done than before. A large number of investment companies, hot money and other bullish expectations do more unilaterally, industry hedge, buy 5 and sell 9 arbitrage, buy 9 and sell 1, buy arbitrage in outer space, etc. Cross-period arbitrage and cross-market arbitrage are also the favorite countermeasures for industrial customers. There are also funds involved.



Because of the change of trading subject and strategy in futures market, the analysis of cotton should be re-integrated into the analysis content of trading level. For this reason, the short army can not be ignored. At a certain stage of future market, it will always cash in profits for the combined army. Therefore, there is no need to doubt whether to do or not, but to grasp the appropriate basis and time point.



Tactics adopted are: to avoid the other side's sharp edge factors, to do their own advantage stage.



Market outlook for 2019



Important factors of cotton mid-and long-term market in 2019 < br />


Influencing factors of rhythm and market in 2019 < br />


The current internal and external fundamentals and macro-situation are summarized as follows:



By December 2018, the global supply situation was clearer. In 18/19, the output was reduced by 1.07 million tons compared with last year. The output situation was not satisfactory and the situation of increasing production in the past year was rewritten. On the demand side, as reflected in the USDA report in December, global consumption increased by 500,000 tons compared with last year, halving the consumption growth forecast in July. From the current estimate, USDA reported a conservative decline in consumption. Only then will there be a monthly downward trend in the later period. Since the end of April this year, the trade war between China and the United States has not been resolved. The downstream consumption of cotton has been impacted by the reality. Consumption has declined. In the fourth quarter, the stock of cotton is high, the stock of raw materials in textile enterprises is abundant, the products of downstream cloth enterprises are high, the export orders are reduced, the risk aversion mood of industry is rising, foreign orders are cautious, the warehouse orders are high, and the fourth quarter is all. Cotton prices have been falling all the way and plates have been fully reflected in the negative quarter, but new problems have arisen. Global assets are shrinking due to the Fed's sustained interest rate increase and contraction, and the economy is declining. Moreover, the Dow Jones index of the United States has fallen sharply, breaking through key points and showing signs of bears. Worries about the economic outlook are more cautious, from capital to property. On the whole, the probability of future economic development is not there. It is typified as a downward turbulence or even a possible financial crisis. The upstream space is very limited and the general trend is not optimistic.



Future variables are listed below. Keep an eye on these factors, which may cause a rebound:



First, in January, the negotiating situation of Sino-US trade war became clearer and clearer, and whether they preferred it or not;



Secondly, there are many weather factors in 2019;



Thirdly, the global low interest rate era will be opened in 2019, and the stimulating effect on the economy needs to be verified;



Fourthly, the final extent of the decline in consumption remains to be verified, whether it will be reduced by millions of tons as everyone fears;



Fifth, the state's policy of collecting and discarding reserves.



Sixth, China has taken various incentives to boost domestic demand after one month, such as large-scale reduction of corporate tax, targeted monetary easing and closure.Construct real estate warming up and so on.



Prediction: Because the economic direction is not very optimistic, the cotton growth pattern is limited, in the absence of financial crisis, the first half of 2019 forecast: cotton has its own planting cost support, such as external cotton at 60 cents, internal cotton at 14,000, internal cotton general pressure at 15,500, the top pressure of 16,000, to maintain the probability of oscillation in the 14000-16,000 range. Big. If there is a financial crisis, it is considered that the probability of cotton bottoming is relatively high.



Overall, in terms of the overall pattern, it is considered that there is a chance of large fluctuations in cotton prices in the next 19 years. With the completion of China's reserve and dumping, the global planting area must maintain a high level and high price in the long run to maintain large supply and demand. In 18/19, there may be new variables in the region's output and demand. In 18/19, the global total supply of cotton is not scarce. The future logic is that China needs to get resources from abroad to achieve internal and external balance. From the macro point of view, the negative impact of Sino-US trade war friction and the downward pressure of the global economy have increased vigilance and macro-weakness. The fundamentals will be more affected by the weather next year, which will be triggered by many potential favorable factors. From the perspective of trading strategy, It is believed that there are opportunities to operate from different trading entities. Under the condition that the futures price drops sharply, we can try to do more at the lowest price and higher at the margin of safety. It is believed that if the trade war does not deteriorate, the low point of time will be in December and January, and the spot pressure will gradually improve after March. If the trade war turns better, it will be considered as a process of rebounding from the bottom to the bottom, with the first half of the year's oscillation range (14000-16000). If the Sino-US trade war worsens and the macro-crisis emerges, Zheng's cotton price will reach a bottom of 13,000 again.