【Wdoodoo Weekly Cotton Report】New cotton arrivals support prices, while weak demand hampers rebound

New cotton was concentrated in harvest before and after the long holiday, with futures prices initially declining but later rebounding. Over half of the harvest in northern Xinjiang has been completed, raising expectations of reduced output. The lint percentage of new cotton has declined, while seed cotton prices rose slightly. Cotton ginning mills faced difficulties in purchasing, while downstream spinning enterprises remained cautious, leading to a tug-of-war between bullish and bearish forces in the market.

1. The macroeconomic outlook is slightly favorable

In September, the number of non farm workers added in the United States was only 29000, and the data for July and August was significantly revised down. Federal Reserve officials turned dovish overall and may suspend interest rate hikes in October. The United States has entered the sprint stage of the midterm elections, and the Trump administration has strong demands for improving the liquidity environment. The US military is escorting in the Strait of Hormuz and, in conjunction with the G7, is releasing 100 million barrels of strategic reserve crude oil to suppress oil prices over the next four months.

Supply side slightly biased towards support

At the end of September, the reserve cotton wheel came to an end, and the pressure of throwing and storing decreased.

The harvesting progress in northern Xinjiang is more than half, while in southern Xinjiang it is slightly delayed by about five days, leading to a slight increase in discussions on production reduction; This year, the net clothing percentage of seed cotton has decreased by 1 percentage point year-on-year, with mainstream net clothing percentage ranging from 34% to 36%. The purchase price is 7.3-7.4 yuan/kg, which is about 0.1 yuan/kg higher than before the holiday. The cost of lint may fall around 16500-17000.

Cotton mills that have advanced hedging or targeted orders have acquired a large number of products, but those that have not done risk hedging are worried about the current situation and dare not purchase in large quantities. Some cotton farmers sell at the same price, while others believe that the reduction in yield per mu is higher than expected and hold onto cotton for price.

However, in mid September, the national commercial inventory was 1.8 million tons, an increase of 634000 tons year-on-year. With the centralized public inspection and listing of new cotton, there is a seasonal increase in supply. It is expected that there will be significant pressure from concentrated hedging during the rebound.

In addition, the USDA report for the month slightly increased production in the United States and Brazil, resulting in an increase in the end of period inventory to consumption ratio, which to some extent offset the expected reduction in cotton production in Xinjiang.

Downstream demand is weak.

The peak season did not meet expectations, yarn production fluctuated at a low level, yarn factory profits were weak, gauze inventory was high, and demand only marginally improved. Port cotton yarn inventory has also been rapidly rising recently. The inventory of raw materials in textile enterprises is still acceptable, but the willingness to pick up goods from the previous Double 29 fixed price of 17100 yuan/ton is not strong. They tend to adopt a spot price of about 1100 yuan/ton based on the market and basis after the holiday. It is expected that the basis trend will remain stable in October.

Overall, after a significant decline in the early stage, the downward pressure on Zhengmian has been released, and it has entered a consolidation phase in the short term, waiting for new drivers. The small increase in the purchase cost of seed cotton supports cotton prices, but the rebound space is limited by weak demand and hedging pressure, and currently does not have the conditions for significant unilateral fluctuations. It is expected to fluctuate within the short-term range of 15500-16200.