Target price test cotton market will fluctuate or increase

On April 5, the National Development and Reform Commission, the Ministry of Finance, and the Ministry of Agriculture jointly announced the 2014 cotton target price level to the society. What will be the impact on the operation of the domestic cotton market before and after the listing of new cotton by changing from the temporary purchase and storage policy that directly intervenes in the market to the target price policy in the subsidized production sector? Has cotton production dropped significantly in the past two years? What changes will occur to the market risks faced by various market players? I hope this topic will give readers some inspiration.

After the listing of new cotton prices, the downward pressure on prices is higher. Before the listing of new cotton products this year, the national reserve cotton injection will continue to dominate the domestic market, and it is expected that the cotton price will continue to remain basically stable. At the end of March 2013, the temporary purchase and storage of cotton had been completed. The country’s accumulated purchases and sales were 6,307,000 tons, while the National Bureau of Statistics released the current year’s cotton output of 6.31 million tons. In other words, the vast majority of domestic cotton has entered the treasury, and the market circulation is very small. With the orderly delivery of the State Reserve Cotton, the supply of the domestic cotton market is stable, and it is expected that there will be no major fluctuations in the cotton market before the arrival of new cotton.

After the listing of new cotton in September of this year, due to the cancellation of the temporary purchase and storage policy, the price will follow the market, the country’s high level of cotton inventories, and the price of imported cotton will be significantly lower than domestic cotton. According to the monitoring of the Ministry of Agriculture, the 1% tariff on imports of imported cotton in March was 15422 yuan per ton, and the slip tax was 16319 yuan on the shore, which was lower than the domestic price by about 4,000 yuan and 3,000 yuan respectively. If demand does not significantly improve, the purchase price of cotton may drop significantly due to the expected impact of the market's oversupply.

From the perspective of the international market, according to the latest forecast of the International Cotton Advisory Committee (ICAC), global cotton production in 2013/14 was 25.75 million tons, which was a decrease of 4.3% year-on-year, and consumption was 23.6 million tons, a year-on-year increase of 1.0%, as production was still greater than consumption. Global cotton ending stocks continued to increase to 19.93 million tons. Except for China, the stock-to-consumption ratio was 53%, which is still at a historical high. Despite the fact that international cotton prices have rebounded slightly due to multiple factors such as a favorable global economy and tight supply of US cotton resources this year, due to the cancellation of the temporary purchase and storage policy in China, an important factor supporting the firmness of global cotton prices no longer exists. As domestic and foreign cotton spreads have narrowed to a reasonable extent, the price advantage of imported cotton has weakened, and international cotton prices are likely to be under pressure, further driving domestic cotton prices to fall.

It should be noted that if the "policy market" price before the listing of Xinmian and the market price of Xinmian after the formation of a large gap between the market, the market formed a sharp decline in price expectations, may appear in the early stage of the new cotton cotton farmers will first appear Reluctant sellers and processing companies cautiously closed the stalemate, and then there may be concentrated farmers selling cotton resulting in "selling cotton difficult" and the market price "cliff-breaking" coexist. Therefore, the plan to deal with the sharp drop in the post-listed price of new cotton should be studied as soon as possible.

The area of ​​cotton will continue to decline in the next two years. As cotton production costs, especially labor costs, have risen rapidly in recent years, the comparative benefits of planting have decreased, and China's cotton planting area has declined year by year. According to data from the National Bureau of Statistics, China's cotton sown area was 65.25 million mu in 2013, a decrease of 5.1 million mu over the previous year, which was the lowest in 10 years.

This year, the cotton acreage will continue to decline. According to the monitoring of the China Cotton Economic Information System, the country's intention to plant cotton decreased by 7.9% year-on-year in the new year, of which the Yellow River Basin, the Yangtze River Basin and the Northwest Inland Cotton Area decreased by 9.5%, 11.4% and 2.1% respectively. This year, the State launched a cotton target price subsidy pilot project in Xinjiang. Since the income of farmers is basically guaranteed, the planting area is expected to remain stable. After the cancellation of temporary storage and storage policies in the Yellow River Basin and the Yangtze River Basin, the corresponding supporting policies are not clear. Farmers' cotton planting is expected. Positivity will decline further.

However, due to the relatively late release of this year's target price policy, in early April the nursery in the Yangtze River basin and the Yellow River basin has begun. Some areas have already begun transplanting, and the planting structure can no longer be adjusted. The area will not be significantly reduced again. However, if the prices of new cotton fall significantly after the IPO in the autumn and the yield of cotton plantings has fallen sharply, the local agricultural department expects that the area of ​​cotton in the Yellow River valley and the Yangtze River basin area will be accelerated in the next year, and the cotton cultivation will be more concentrated, and the area will be in an advantageous position. It is mainly saline-alkali land and beach land where other crops are planted. Afterwards, with the completion of the destocking of the State Reserve Cotton and the reduction of domestic and foreign cotton area, the domestic cotton price will be supported and the cotton planting efficiency will increase. It is expected that the cotton area in China will be basically stable. From the perspective of regional structure, the proportion of Xinjiang cotton in the total domestic cotton output (51.8% in 2012) will further increase.

Price volatility increases market risk steeply Since the implementation of the temporary purchase and storage policy in 2011, China's cotton market has been operating very smoothly. The volatility is not only significantly lower than before the temporary purchase and storage policy, but also lower than the international market. According to the monitoring of the Ministry of Agriculture, during the 31 months from September 2011 to March 2014, the month-to-month fluctuations of the domestic average monthly price of 328 grades of cotton was within ±1% of the monthly fluctuations for 22 months, and the maximum fluctuation month was -3.6. %. In the 31 months before the implementation of the temporary purchase and storage policy (February 2009 to August 2011), the monthly average monthly cotton price of domestic cotton fluctuate within ± 1% of the month, and the month with the largest fluctuation is the month-on-month ratio. It is up 34.9%, and the monthly fluctuations of more than ±10% occur twice a year. It can be described as a "roller coaster" market. From the perspective of international cotton prices, except for the significant fluctuations in 2010-2011, the month-on-month increase and decrease of most of the months was below ±10%. It can be said that the “regulator” effect of the temporary purchasing and storage policy is very significant.

The temporary purchase and storage policy stabilizes the domestic cotton market, while also weakening the market vitality and affecting the function of the market mechanism. When the national reserve cotton was acquired and put into circulation as the main channel for cotton circulation, the seed cotton of the farmers was basically not sold, the lint cotton processed by the ginning factory was directly handed over to the State Reserve, and the textile enterprises waited for the reserve cotton to be auctioned, and the ** market exchange became increasingly deserted. In 3 years, the market sensitivity of each link inevitably declined.

After the implementation of the target price policy, it is expected that the domestic cotton price volatility will increase renewably, and will simultaneously change with the international market, and the market risks faced by various market entities will be highlighted. Farmers need to choose to sell cotton according to market prices. There may be problems with the lint of processing companies. The cotton used by textile companies also faces price fluctuations and quality control risks in purchasing raw materials from the market. When the temporary purchasing and storage policy is cancelled and the cotton market environment undergoes major changes, it is expected that each subject will have varying degrees of incompatibility at the initial stage. If the situation analysis and risk judgment are not properly prepared and prepared accordingly, over-reaction may occur. Market operations and industrial development have potential adverse effects.

Some people think that the impact of falling prices has little effect on the income of cotton farmers in the pilot areas. The lower the price, the more subsidy the farmers receive and there is little market risk. However, in reality, because the target price subsidy accounts for the subsidy according to the difference between the average market price during the bidding period and the target price, if the purchase price continues to fall, farmers who sell cotton earlier will benefit more from the market than farmers who sell cotton at night. . Therefore, once Xinmian is listed on a centralized basis and once prices are expected to fall, the main producing areas may be eager to sell cotton under the psychological effect of “selling and selling does not sell up”, thus amplifying the risk of “selling cotton hard”.

Therefore, while carrying out the publicity and explanation of the target price policy, we must also make market risk warnings and information warnings and announcements, guide farmers to sell cotton in an orderly manner, and provide necessary funds and quality inspection services for processing companies and textile enterprises to acquire cotton. , guide enterprises to use ** market to manage market risks.