【Wdoodoo Weekly Cotton Report】Cotton: Lacking upward momentum, focus on August weather and peak season turning point

Last week, Zhengzhou cotton fluctuated weakly. CF09 closed at 15745 yuan/ton, down 260 yuan/ton month on month; National cotton 3128B closed at 17120 yuan/ton, a month on month decrease of 225 yuan/ton. The pressure of dumping and storage is gradually accumulating, and the demand for finished products is accumulating during the off-season. Zhengzhou cotton lacks upward driving force in the short term.

1. Macro support has weakened to some extent.

Affected by the weakening of GDP and CPI on a month on month basis, the Federal Reserve has kept interest rates unchanged. However, the US and Iran are pushing for talks, and the geopolitical risk premium has kept global inflation expectations high. The report shows that expectations of a rate hike in September are still high, suppressing commodity valuations.

At the weekend, the United States again TACO, maintaining the judgment that interest rate reduction is the main theme of the United States, and paying attention to the disturbance of the changes in the interest rate of the long-term treasury bond bonds of the United States to the Middle East policy.

The policy focus of the Politburo meeting is more inclined to deal with downward pressure, and implementing and making good use of existing policies is still a priority option. If the downward pressure on the fundamentals increases in the third and fourth quarters, incremental policies may provide support and protection.

2. The short-term weather has improved, but a super strong El Ni ñ o is highly likely to form.

The drought index of American cotton continues to improve, but the excellent rate in the main planting states is 46%, which is still 11 percentage points lower than the same period last year; At present, monsoon rainfall in India is still significantly lower than the same period in previous years, putting pressure on planting area and yield. It is doubtful whether planting can be expanded.

The upward driving force of weather on cotton always exists. NOAA predicts that there is an 81% probability of a super El Ni ñ o occurring from October to December in the past 150 years, and a 97% probability of it continuing until early spring 2027, which may affect cotton production expectations in major producing countries such as India, Australia, and Brazil.

3. Short term policies continue to exert pressure.

Cotton rotation continues to increase market supply. During the week of July 31st, the total sales of reserve cotton resources listed was 40100 tons, with a total transaction volume of 40100 tons and a transaction rate of 100%. The average transaction price is 17101 yuan/ton, with a discount of 3128 yuan/ton and a price of 17738 yuan/ton. The average markup is around 1563 yuan/ton, a decrease of 150 yuan from the first week's markup.

Based on the current daily listing volume of 8000 tons of reserve cotton, a total of 420000 tons have been listed as of September 30th. The reserve cotton wheel effectively supplements the gap of old crops, alleviates the expectation of tight supply-demand balance, and puts pressure on cotton prices.

On July 31st, the United States expanded its list of entities involved in Xinjiang, increasing by about 30% to 187 compared to before, putting pressure on cotton exports.

3. The textile industry continues the off-season atmosphere, and there is a strong need for resilience

The downstream off-season atmosphere is significant, with few new orders and sluggish transactions. The production rate of yarn and embryo fabric continues to decline, and finished product inventory continues to accumulate. Only 60% of inland small and medium-sized textile enterprises such as Henan and Anhui have started production, and some enterprises have inventory of up to one and a half months, generally lowering prices for shipment. Cotton mills purchase according to demand, with a cautious attitude towards chasing high prices, and restock at low prices for urgent needs. The continuous influx of Xinjiang cotton yarn into the mainland has intensified industry competition, resulting in weakened profits for textile enterprises and low market confidence.

However, the expansion of spinning in Xinjiang is urgently needed to support the bottom, and commercial inventory continues to decrease. The market expects the "Golden September and Silver October" peak season to drive order recovery.

Overall, short-term dumping and storage continue to increase, with downstream off-season dragging down, putting pressure on cotton prices; However, Chen Mian continues to consume, and the global new season production cuts and El Ni ñ o have not been proven false. In August, attention will be paid to the recovery of downstream peak season orders and weather disturbances in Xinjiang production areas. In terms of operation, Zheng Mian will maintain a short-term fluctuation trend within the range of 15500-16200, and be cautious and bullish in the medium to long term.