WildTigerTwirl| Agricultural products 丨 Can the rebound momentum of cotton continue?

Source: Guangzhou Futures

Agricultural products 丨 Can the rebound momentum of cotton continueWildTigerTwirl？

Since last Thursday, cotton prices rebounded after nearly a month of decline. The early cotton bearish strategy successfully closed profits, and cotton prices rebounded for six consecutive trading days. So, what are the reasons for the recent price rebound? Have the current fundamentals changed? Can the subsequent rebound in cotton prices continue? The answers will be answered one by one below.

(1) Reasons for the rebound

In our view, there are two main reasons for the recent rebound in cotton prices. First, the domestic external macro environment has recently warmed up. Factors such as improving data in April and the release of favorable real estate policies have led to a rebound in commodity prices. Cotton production companies have increased their enthusiasm for sales and are willing to hold prices.

Second, the domestic cotton market is closely connected with the international market, and changes in the external market affect the internal market trend. Currently, the United States and India are in the cotton planting stage. Their continued humid weather may have an impact on cotton planting and output. Weather factor hype has helped cotton prices rise. At the same time, after the U.S. cotton price continued to fall sharply for a long time, the market showed bullish sentiment. Some investors bought on dips. The U.S. cotton price was around 75 cents/pound, and the futures price was adjusted and repaired.

(2) Supply and demand analysis

So, can the favorable factors that have helped the price rebound this time improve the current supply and demand pattern at home and abroad?

From the perspective of the international market, according to data released by the USDA, the current cotton planting rate in the United States is 33%, which is higher than the average of the past five years, and sowing is smooth; at the same time, Brazilian cotton and Australian cotton are gradually being launched, and the supply is sufficient. Short-term weather factors are easy to digest and will not have much impact on the output of major producing countries. However, despite the increase in supply, consumption has not improved, and demand from the world's major textile countries is still weak, suppressing cotton prices. According to the USDA's forecast of supply and demand in May, global production and consumption will increase in 2024/25, but the growth in production is expected to be higher than consumption, and the overall data is neutral and empty.

From the perspective of the domestic market, although domestic ginning plants are basically seasonal shut down, due to China's large import of U.S. cotton in April (the import volume increased by 309 percent compared with the same period last year.WildTigerTwirl.28%), sufficient supply puts upstream companies under greater pressure. Despite the improvement of the macro environment, downstream demand is still weak. Textile companies have reported that there is a shortage of orders and widespread price reductions, and companies are not enthusiastic about receiving orders. At the same time, small and medium-sized textile companies generally carry out inventory production, while the speed of cotton yarn shipment is slow, which makes textile companies 'demand for cotton low. The current price of cotton has dropped sharply for two consecutive days.

(3) Future outlook

Overall, the international and domestic markets are currently in a situation of sufficient supply and weak demand, and cotton prices have been weak for a long time. After rising 3.93% in the previous trading day, the US cotton price fell again at night trading on the latest trading day, and cotton prices lacked momentum to rise. The similar supply and demand pattern in the domestic and international markets may also indicate that cotton prices have not yet stabilized. In the absence of clear bullish signals, futures prices may fluctuate. However, subsequent exports and consumption are subject to large variables, and their impact needs to be gradually confirmed over time.