Domestic Cotton Futures Are Not Suitable For Hedging

< p > the national cotton trading market has recently announced that it has passed the national a href= "//www.sjfzxm.com/news/index_s.asp" > cotton < /a > trading market's reserve cotton auction system since November 28th, and sold out part of the national reserve cotton, which means that the news of the long-awaited sale of state cotton and cotton was officially landed.

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Less than P, it has been widely rumored that the Chinese government plans to sell some of its 10 million tons of cotton reserves in the near future. This is an early move in the cotton market.

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< p > besides, the reporter learned from the China Cotton Association that although the picking of cotton seeds has basically ended, the cotton purchase market is still dull.

Looking back on the past three years, cotton prices have been stable near 20000 yuan / ton, but since the second half of 2013, cotton prices have begun to shift downward. The main reason is that the policy of temporary purchase and storage is no longer implemented in 2014.

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"P" for national storage cotton, Mr. Li, deputy general manager of Shandong Cotton Industry Co., Ltd., believes that the price of the dumping is set at 18000 yuan / ton and does not sell the imported cotton quotas, which is equal to the top of cotton prices in the world. Unless the futures market has a forced action, it is generally difficult to overtake the price.

Even though some cotton enterprises in China have special needs for high-grade cotton in the United States and Australia, they will buy high priced cotton, but once cotton prices in India are higher than China's 18000 yuan / ton, no cotton enterprises will buy them.

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< p > < strong > India cotton is favored, < /strong > /p >

< p > according to the reporter, as the fourth quarter draws to a close, China's domestic gauze market continues to be a weak pattern, and the operating rate of enterprises is not changed much earlier than that of the previous stage, with the shortage of orders, and the inventory of finished goods continues to increase.

At present, most of the < a target= "_blank" href= "//www.sjfzxm.com/" > textile < /a > the cotton stocks of enterprises have dropped to historical lows, and some small and medium-sized textile enterprises can only meet the basic stockpiles of cotton stocks, generally only meet the production volume of a month's inventory.

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< p > with the gradual development of China's storage and dumping surface, for some cotton mills which need to replenish their inventory, to a certain extent, although they can meet their cotton demand, the proportion of real estate cotton is slightly higher than that of Xinjiang cotton in accordance with the remaining national storage cotton structure in 2011. This is probably not enough to meet the actual demand for the textile enterprises waiting for the demand for high-grade cotton, and raw material procurement will still depend on the new cotton coming to Hong Kong and some Xinjiang cotton spot.

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< p > in addition, as of mid November, the national cotton picking rate was 91.5%, down 0.2% compared to the same period last year, and cotton purchasing accounted for 70.9% of the total output, down 1.3% from the same period last year.

In addition, 2013 cotton temporary storage and storage totaled 2646200 tons in. The total turnover of Xinjiang was 1245200 tons, and the total volume of pactions in the mainland was 568050 tons.

Total turnover decreased by 13% compared with the same period last year, while Xinjiang decreased by 37% compared with the same period last year, and the mainland decreased by 50% over the same period last year.

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< p > Galaxy futures cotton analyst Chen Xiaoyan believes that the biggest problem of China's cotton industry chain now is that China's cotton planting mechanization and industrialization are low, resulting in high cost and weak competitiveness. Small farmers' planting mode also makes it difficult for cotton subsidies, and the price of throwing 18000 yuan per ton per ton does not match the quota of imported cotton, which is higher than market expectations.

While throwing reserves for 9 months, although the cotton price is up in the medium to long term, there is little room for cotton prices to drop in the short term.

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< p > Chen Xiaoyan agrees with the view of the deputy general manager's upper limit of 18000 yuan / ton, but she thinks the top may be around 18500 yuan / ton.

Because according to the current international cotton price and basis, there is room for 18000 yuan / ton near China.

But once there is no quota to import 40% tariffs, then basically the same price with domestic prices, traders will not have much room.

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< p > the difference between inside and outside cotton prices, said the Deputy General Manager: "now we are inclined to purchase India cotton in the aspect of purchasing cotton. Our boss will go to India next week.

According to past rules, 19000 yuan / ton of cotton in the United States is too expensive, even if they want to buy, they all use quotas.

And now it is the season for India cotton to go on a large scale. According to the US cotton price, it is equivalent to RMB 17500 yuan per ton, and 14300 yuan per ton according to the sliding tax. If the tariff quota is 1%, it will be 13000 yuan per ton.

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< p > according to Chen Xiaoyan, "for a long time, our cotton is subject to tariff quota management, and the tariff of trade quota is not high.

No quota is required to import 40% of the tariff, so the cost is naturally high.

Generally speaking, enterprises with quota conditions should be satisfied if they have more than 50 thousand tons of cotton textile enterprises with the qualification of imported cotton, or enterprises that import substantial quantities last year.

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< p > however, for the cotton industry chain, cotton production should be developed to industrialization and mechanization. During the pition period, the policy should protect the production link upgrading and development by "direct subsidy" and other small impact on the market price. The other is to give the market and intervene as little as possible, and the other is to use more financial derivatives tools to hedge the risk of price fluctuation, such as futures and options.

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< p > < strong > storage and purchase policy: double-edged sword < /strong > < /p >

< p > recently, insiders revealed that the policy of State purchasing and storage is undergoing major adjustment.

Informed sources told reporters that corn, cotton and other agricultural products (8.40, -0.10, -1.18%) will cancel the implementation of many years of market support, instead of "direct subsidy" to farmers.

Prior to the implementation of China's corn, soybean, cotton, rapeseed temporary collection and storage policy.

But these market takeover policies have been criticized in recent years for distorting market prices and implementing chaos.

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< p > take cotton as an example. Because the price of cotton is higher than the price of foreign cotton, the domestic cotton market is seriously out of touch with the international cotton market and the price is upside down, resulting in a large loss of textile enterprises.

Because of limited import quotas, even some enterprises have made profits from scalping quota.

Insiders said that the policy of temporary cotton purchasing and storage with strong administration will end, and cotton prices will be determined by the market. In addition, direct subsidy will be adopted to protect cotton farmers. The plan is expected to come out next year.

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< p > in fact, not only the price of domestic cotton is declining, but also we can see from the trend of US cotton in the past 3 years.

In June 2012, there was a low level of 65 cents / lbs in June 2012, and the recent year was around a shock of about 80 cents per pound.

However, by observing, the US cotton trend is also affected by China's large-scale acquisition and storage.

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< p > 2011-2012, China's < a href= > //www.sjfzxm.com/news/index_q.asp > storage > /a > nearly 1 million tons of outer cotton, 2012-2013 tons of cotton and nearly 400 thousand tons of cotton in the year of 2012-2013. In the 2013-2014 year, it is estimated that China will throw away the stock. The market is expected to reduce the possibility of foreign cotton purchase and reduce the quota of imported cotton.

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< p > Fu Xiaoyan, a cotton analyst at Nanhua futures, believes that the causes of Cotton falling are divided into direct and indirect causes.

She believes that textile enterprises have always been considered to be highly overcapacity industries. Based on the low entry threshold, a small workshop can be set up just as long as a certain amount of money is available.

Over the past few years, the state has implemented a temporary purchasing and storage policy aimed at stabilizing domestic cotton prices and protecting the interests of textile enterprises.

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< p > purchasing and storage policy can alleviate the contradiction between supply and demand by providing the lowest purchase price. However, the enterprises receiving the storage should have certain qualifications. The enterprises without qualification can only be disappointed. Especially when the whole industry is stagnant and need to rely on storage and maintenance operations, small workshops or enterprises with low risk bearing capacity can only choose to close.

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< p > Chen Xiaoyan said that if the cotton temporary purchase and storage policy is gradually withdrawn, cotton planting may face more severe competition, and it is not ruled out that the purchase price of seed cotton will be significantly reduced and the cotton planting area will be substantially reduced.

At present, the state is studying the establishment of a direct subsidy mechanism for cotton, and based on the protection of cotton farmers, the establishment of a reduction in market price distortions.

In the case of withdrawal of the storage and withdrawal policy, cotton enterprises and downstream textile enterprises will survive in a more market-oriented environment, and the mode of operation of enterprises can be more flexible and conducive to the optimization of industrial structure.

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< p > in addition, although the number of a href= "//www.sjfzxm.com/news/index_c.asp" > futures < /a > warehouse receipts is still relatively small, the space for cotton enterprises to use futures market is relatively limited, but with the withdrawal of the cotton related policy that affects market pricing, futures will play a greater role in the risk of volatility in the hedge market.

Fu Xiaoyan said: "at present, domestic cotton prices fluctuate little, so it is not recommended to enter the market to maintain value.

But as far as we know, many enterprises have chosen to fight outside the United States cotton, which is more operational in the United States.

In the short term, either cotton or cotton should not be chosen.

At present, the price of US cotton is suitable for those enterprises with low inventory and large quantities of imports.

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