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On July 8, China Cotton Reserve Management Co., Ltd. issued an announcement stating that in accordance with the requirements of relevant state departments and the arrangements of China Grain Reserve Management Group Co., Ltd., in order to promote the smooth operation of the cotton market, China Cotton Reserve Management Co., Ltd. will organize the first batch in 2022. Central reserve cotton rotation. After the announcement, the market reaction was relatively strong. Many industry professionals said that this move will benefit the country, protect the people, protect the business and stabilize the industry, and have many benefits.

This year's first batch of cotton storage highlights more

Judging from the content of the announcement, the collection and storage time will start on July 13, 2022. It is important that the end time will be determined in due course according to the market situation and the collection and storage situation. The total amount of collection and storage is 300000-500000 tons, and the daily listing quantity is balanced and dynamically adjusted in principle. The purchase and storage bidding ceiling price (to the warehouse price) is dynamically determined according to the domestic cotton spot price of the previous working day, and the start/stop price is set. The purchase and storage will be started when the domestic cotton spot price of the current working day is lower than 18600 yuan/ton (inclusive) and stopped when it is higher than 18600 yuan/ton. The collection and storage method is through the national cotton trading market open bidding transactions. The trading object is limited to the cotton target price reform processing enterprises determined after the publicity of Xinjiang Uygur Autonomous Region and Xinjiang production and Construction Corps in 2021/2022. The quality standard for purchasing and storing cotton is sawtooth fine staple cotton produced and processed in 2021/2022 and has been included in Xinjiang cotton professional supervision. The proportion of color grade white cotton grade 4 and above and light spot dirty cotton grade 1 (and color grade white cotton grade 3 and above in Xinjiang supervision database notarized inspection results), length grade 28mm and above, micronaire grade B and above shall not be less than 80%, and the specific quality requirements shall be announced separately. Cotton packaging shall be wrapped with cotton cloth and conform to the national standard for cotton packaging (GB6975-2013). In terms of notarization and inspection, the quality and weight of the central reserve cotton collected and stored shall be notarized and inspected at 100 per cent by the China Fiber Quality Monitoring Center. In addition, China Reserve Cotton Management Co., Ltd. will work with the National Cotton Trading Market and the China Fiber quality Monitoring Center to formulate detailed rules for the implementation of the central reserve cotton collection and storage, competitive trading, notarization and inspection, and announce it in advance through their respective official websites and the national cotton trading market website. In the process of the central reserve cotton rotation, if there are major changes in the domestic and foreign cotton markets, according to the requirements of the relevant departments' regulation and control opinions, it is necessary to make necessary adjustments to the collection and storage arrangements, and a separate notice will be given at that time.

The general manager of a cotton-related group in Henan Province told Futures Daily that the biggest highlight of the first batch of cotton purchasing and storage this year is to enhance market confidence. One is to "appease" the "anxious" mentality of the ginning factory and make it rational. The second is to stabilize the enthusiasm of cotton farmers to strengthen the management of cotton fields in the new season, so that they no longer worry about whether the price of seed cotton in the new season is significantly lower. The third is to support traders to carry out normal cotton purchase and sale activities, dispelling their fears that cotton prices will fall sharply again. The fourth is to stabilize the uneasy mood of the entire market, so that all market players see the hope of stabilizing cotton prices.

Professionals in the industry believe that from the analysis of the implementation rules of the first batch of cotton purchasing and storage this year, there are still many new features compared with the past. For example, compared with previous years' purchasing and storage, first, only the start time is specified, and the end time is not clearly specified, but "the end time is determined in due course according to the market situation, purchasing and storage situation, etc.", releasing a positive signal of "exchanging time for space" in the policy adjustment. Second, in terms of the number of rounds, there is no relatively specific figure that guides the daily purchasing and storage quantity, instead, it is "balanced arrangement and dynamic adjustment in principle", giving greater possibility in the quantity of purchasing and storage. Third, the determination and adjustment cycle of purchasing and storage prices will be changed from a fixed one-week period and linked up according to the domestic spot price to a fixed one-day period and clearly according to the arithmetic average of China's cotton price index and the national cotton price index. Fourth, in terms of fuse mechanism, due to the special circumstances that the price difference between internal and external cotton prices continue to deep upside down, from "the price difference between internal and external cotton will be suspended if it exceeds 800 yuan/ton for 3 consecutive working days" to "if it is higher than 18600 yuan/ton, it will be suspended if it is lower than it will be started"; Fifth, in terms of quality requirements, the color grade requirements have been relaxed, from the previous "white cotton grade 3 and above accounting for not less than 80%" to "as long as the first inspection result is white cotton grade 3 and above, then the notarization inspection results of the reserve also meet the delivery and storage requirements for white cotton grade 4 and above and light-stained cotton grade 1", fully considering the possibility of color degradation brought about by time.

Ginning factory heart of hope

"Since the end of the purchase of newly produced seed cotton and the end of lint processing last year, the spot price of domestic cotton has been performing poorly. Since May this year, the price of cotton has continued to decline. For example, the contract price of Zheng Mian's main 2209 has dropped from the highest point of 22035 yuan/ton on May 5 to the lowest price of 16220 yuan/ton on July 8, with a cumulative decline of 5815 yuan/ton." Yang Yong, general manager of Shanghai Yu'an Trading Co., Ltd., told reporters that due to the long-term decline in cotton prices, coupled with the accumulation of upstream and downstream products, and the influence of other external factors, the current domestic cotton market has finally appeared a difficult pattern of survival that has been rare for many years.

According to Yang Yong, at present, the main body of the market with high-cost lint, such as ginning mills, is not only difficult to achieve the business goal of selling at the right price, but also facing the pressure of "double zero", and the lack of capital turnover has made it lose its ability to continue to operate, and individual ginning mills have reached the brink of "collapse. According to the reporter's understanding, during the listing stage of newly produced seed cotton last year, the market appeared a pattern of high opening and high going, and the purchase price of seed cotton was generally around 11 yuan/kg. If calculated according to the mainstream purchase price of seed cotton purchased by most ginning mills last year, the production cost of lint is 23,000-24,000 yuan/ton. Compared with the current market price, basically all the ginning mills are losing money.

"After the start of cotton purchasing and storage, it is conservatively estimated that cotton prices will 'bottom' and the probability of another sharp decline will be much lower. This gives many ginning mills hope of survival." The person in charge of a ginning factory in Shihezi City, Xinjiang, told reporters that after the price of cotton stabilizes, the cotton in hand is considered to have real "value", and financial institutions or third-party funds may intervene in financing. At this time, it is possible for the ginning plant to take various measures to save itself, and there is hope for continued operation and survival.

When communicating with some enterprises involved in the cotton industry, the reporter learned that whether they are ginning mills or cotton traders, because they need to take up a lot of funds in their operations, many enterprises are looking for financial institutions or third parties to provide financial support. Industrial enterprises can have a large amount of cotton resources as long as they pay a certain proportion of the deposit. In the process of rising cotton prices, the result of this financing business model is "everyone is happy", and in the process of continuous decline in cotton prices, business risks will continue to accumulate, if risk prevention and control is not in place, the final result of ginning mills and so on is to embark on the "road of no return". Now, with the purchase and storage of cotton, it is expected that with the continuous increase of reserves, cotton prices are not only expected to stabilize, but also increase the probability of upward, so that the market sees hope.

Farmers have a bottom in their hearts.

Yan Youfa, chairman of Xinjiang Yanshi Dehai Agricultural Technology Co., Ltd., told reporters that judging from the current cotton growth in Xinjiang, it has reached a good level for many years. According to him, although the cost of cotton planting has increased a lot this year, stimulated by the high purchase price of seed cotton and the high efficiency of cotton planting in recent years, the cotton planting area has been increasing steadily in both localities and corps. The important thing is that since the cotton was planted this year, the main producing areas have been hot and rainy, which has caused cotton to bloom early and bear more peaches. Most farmers are optimistic about the high yield of cotton this year.

However, in the face of the continuous decline in cotton prices, many farmers are still worried that the purchase price of new season seed cotton will be too low after it goes on the market, and they are more worried about the decline in their income from planting cotton this year. What is gratifying is that this year's first batch of cotton collection and storage was launched in due course, and the majority of farmers have a bottom in their hearts.

Xiao Xiao, a large cotton grower in Hubi County, Xinjiang, told reporters that recently there has been high temperature in many places in Xinjiang, and cotton field management cannot be relaxed at all. He basically stayed in the cotton field all night for watering and other operations. He is very happy that the relevant state agencies have introduced cotton purchasing and storage measures. There is no need to worry too much about the purchase price of seed cotton this year. The only thing to do now is to take measures to increase cotton yield, hoping to use the increase in yield to make up for the expected seed cotton this year. The loss of income caused by lower cotton prices.

It is understood that due to the high temperature, Xiao Xiao leads the workers to manage the cotton fields most of the day. The evaporation of the cotton fields is very high. We must always pay attention to the moisture content of the cotton fields, and at the same time use drones to prevent and control diseases and insect pests. This year, due to the joint growth of agricultural materials, labor and land rent, the cost of cotton planting has increased by hundreds of yuan per mu this year. In addition, the market expects that the price of new cotton will rise as it did last year. Many cotton farmers are worried that the income of cotton planting will decrease this year, and even the phenomenon of "income without guarantee" will appear. After the "boots" of cotton purchasing and storage in Xinjiang, the downward trend of cotton prices will be curbed, alleviating the worries of cotton farmers.