From February to March, the prosperity index of the textile and garment professional market was stable and improving
According to the prosperity monitoring results of the Circulation Branch of the China National Textile and Apparel Council, from February to March 2024, the prosperity index of the national textile and garment professional market managers was 51.45, down 1.94 percentage points from the previous month, and the prosperity index of the professional market merchants was 51.67, up 0.74 percentage points from the previous month.
The data show that from February to March, the prosperity index of the national textile and garment professional market managers declined, and the business prosperity index rose slightly, both of which were higher than 50, indicating that the prosperity of the national textile and garment professional market was stable and improving.
Weather factors disturb the current cotton market, and the probability of Zhengmian rebounding in April is high
Experts say that the moderately strong El Niño event that began in May 2023 is now weakening and is expected to end in the spring of 2024. It is expected that the equatorial Pacific Ocean will enter a La Niña state this summer, and a La Niña event will form at the end of the year, with a large amplitude of SST changes. Wu Jingwen, a soft commodities analyst at CITIC Futures, said that last year was a strong El Niño year, and the U.S. cotton output was the most significant and directly related to the weather, and other countries were relatively less sensitive. In 2023/2024, U.S. cotton production decreased by 520,000 tons, mainly due to the drought in the main producing areas that increased the abandonment rate to a record high, China's cotton output decreased by 700,000 tons, the core reason was the decline in cotton planting area, India's cotton output decreased by 170,000 tons, little change, and Brazil's cotton output increased by 620,000 tons.
The table below summarizes the impact of moderate and above El Niño events on global cotton area, yield, and yield over the past 50 years. It can be seen that the impact of El Niño on global cotton production is mainly reduced, and the reduction mainly depends on the reduction of harvest area, and the correlation between yield change and El Niño phenomenon is not prominent.
The impact of El Niño on global cotton production
From the perspective of meteorological changes from a medium-intensity El Niño to a La Niña, the global cotton production situation in 2024/2025 is relatively optimistic, and we can wait for the USDA global supply and demand report in May to verify it. On the whole, the focus of market transactions has gradually shifted from the demand side to the supply side, and the probability of a rebound in cotton prices in April is high.
Outlook for the cotton market in the second quarter
FY 2023/24:
At present, Zhengmian is in a dilemma, the second quarter is still difficult to get out of the shock pattern, the main May contract or will continue to run in the range of 15,500-16,500 yuan/ton, the situation of external strength and internal weakness will continue, downstream orders and start-up situation is still the key influencing factor. For the September contract of Zheng Mian, if the internal and external inversion continues as expected, it may lead to a decrease in imported cotton and imported yarn.
FY 2024/25:
The new year cotton in the northern hemisphere has entered the planting and growth period, and the market has entered the time window of weather speculation.
The U.S. cotton planting area is expected to increase in 24/25, the Brazilian cotton production is expected to hit a record high, the ICE December contract is facing greater hedging pressure, and the space above the futures price is limited, and the operating range is expected to be 70-90 cents.
The cotton planting area in Xinjiang is expected to decline only slightly, and the output is expected to be stable. Considering the serious overcapacity of Xinjiang ginning factories and the fact that the ginning factories are not injured much this year, the purchase price of new cotton is not expected to be very low, estimated at about 7 yuan/kg. It is preliminarily estimated that the January contract operation range of Zhengmian is 15,000-18,000 yuan/ton.
There are three major factors to pay attention to in the cotton market
In the near future, the cotton market recommends focusing on the following three points:
1. The U.S. Department of Agriculture's (USDA) 2024/2025 planting intentions report shows that the U.S. cotton planting area in 2024/2025 is expected to be 10.673 million acres, 3.0% lower than the forecast of the February outlook forum. As the area growth rate is not as good as market expectations, the short-term impact on the cotton market is more positive.
In addition, the abandonment rate is expected to improve this year as the drought intensity in Texas weakens year-on-year. Overall, the market is optimistic about the output of U.S. cotton this year.
In the long run, the area projected in the March planting intention report is at a low position in recent years, but the final situation still depends on the subsequent planting situation and weather.
2. Entering April, Sino-US cotton will enter the sowing growth period, the domestic cotton planting area will decline slightly year-on-year, the U.S. cotton planting area will increase year-on-year but not as expected, the short-term area factors are more neutral, and the follow-up needs to pay attention to the actual planting area.
From the perspective of cotton growth stage, the current average temperature in China is lower than the historical level, and the cotton planting period is relatively backward. The weather conditions in Texas are more favorable at the moment.
April to May is the cotton sowing period in Xinjiang, and the preliminary survey shows that the domestic planting intention is downward, and weather speculation is prone to occur during the period.
According to the nationwide cotton planting intention survey conducted by the National Cotton Market Testing System in mid-to-late November 2023, the sample involves 14 provinces (autonomous regions), 46 cotton-planting counties (cities, regiments), and 1,700 fixed-point cotton-planting information contact households. The survey results show that in 2024, the intended planting area of cotton in China will be 40.407 million mu, a year-on-year decrease of 995,000 mu, a decrease of 2.4%, of which the intended planting area of cotton in Xinjiang will be 35.393 million mu, a slight decrease of 770,000 mu, or 2.1%, year-on-year.
During the planting period of new cotton, the weather is the focus of the market, but it is likely to be no worse than the same period last year, so the drive for the domestic cotton market is relatively limited.
3. Gold three and silver four are the traditional demand season of the downstream textile industry, and the gold three is not ideal, but the silver four still have expectations.
The demand in the peak season may not be realized, but the peak season is expected to still support Zhengmian.
Based on the analysis of the above points, it is expected that Zheng cotton will open an upward shock rebound cycle from April to June, and it is recommended that cotton textile enterprises pay attention to the trend of cotton prices and grasp the procurement rhythm according to actual demand.
Reference sources: Orient Securities Derivatives Research Institute, Futures Daily, CCB Futures, Zhengxin Futures, China Textile Federation Circulation Branch
Editor: China Yarn Network New Media Team
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