From May 2022, cotton prices peaked back down and opened a big bear market, the core factors are mainly monetary tightening, downward consumption and expansion of seeds to increase production.

Monetary tightening is the first major core factor. Under the pressure of high inflation, Europe and the United States and other major economies continue to raise interest rates, tightening the currency, resulting in commodity markets continue to pressure, cotton is naturally difficult to be alone.

Consumption down is the second core factor of this round of cotton bear market, from May 2022, "foreign consumption is good, domestic consumption is poor" the end of the divergence, transformed into domestic and foreign cotton consumption at the same time decline, consumption side of the shortcomings have continued until November.

Expansion of production is the third core factor of this round of cotton bear market, as cotton prices reached historic highs triggering global expansion, before the extreme weather in July in the U.S. drought and flooding, expansion of production negative pressure on cotton prices fell. From a global perspective, 2021/22 mainstream cotton planting costs of about 61-69 cents / pound, cotton planting profit theoretically more than 80%, will inevitably motivate farmers to increase the next year's cotton planting.

After February 2022, especially the outbreak of the Russian-Ukrainian war led to a big rise in grain prices, cotton's price advantage narrowed, but did not translate into a planting disadvantage. With consumption on the downside, increased production could lead to a reversal of supply and demand and a shift from a de-stocking cycle to a stockpiling cycle, driving cotton prices to top out and fall.

However, the sky is unpredictable, in August 2022 there was a U.S. drought Ba flooding extreme weather, hedging the expansion of increased production shortcomings, triggering a big rally in August U.S. cotton bears.

This round of cotton bear market is likely to have ended.

First, from the point of view of short energy, Zheng cotton in this round of bear market maximum decline of 47%, 12% more than the average bear market decline, the release of the short is very full.

Secondly, the three core factors supporting the bear market have changed. in November, monetary tightening became a slowdown in interest rate hikes; expansion of production was hedged by extreme weather, global production in 2022/23 is flat or even will be slightly lower; domestic and foreign consumption common downside divergence, foreign maintain recession downside, but domestic trading began to recover.

Feedback from Shandong, Jiangsu, Zhejiang, Henan and other spinning enterprises, although after the holiday weaving enterprises in coastal areas, cotton yarn traders are still in a gradual return to work, cotton yarn and other raw materials procurement has not yet been effectively launched, most of the enterprises that have resumed work in advance still to complete orders before the Spring Festival or purposefully increase cotton yarn inventory, but the momentum of cotton yarn rise is very strong.

Since late January, one after another spinning enterprises to raise the airflow spinning yarn offer, the range of more than 100-300 yuan / ton, the entire cotton cotton textile industry chain bullish bullish sentiment is relatively strong. Jiangsu a 50,000 spindle yarn factory, said, before the holiday Zheng cotton CF2305 contract plate price approaching 15000 yuan / ton strong resistance, lint quotes inside and outside the border rose in response, the current Xinjiang supervision library "double 28" machine picked cotton metric weight bite price has generally increased to 15000 yuan / ton or more, resulting in spinning costs rose more.

At present, regardless of spinning enterprises or the light textile market cotton yarn traders, downstream weaving factory cotton yarn inventory is mostly in a low position, so the yarn offer rose in reason. In addition, including India, Vietnam, Pakistan, Uzbekistan and other origins of cotton yarn FOB / CNF offer steady rise, but also on the domestic cotton yarn market support is stronger.

According to the survey, most of the raw materials used by some spinning enterprises were purchased in December last year (Zheng cotton CF2205 contract plate price 13,000-14,500 yuan / ton), corresponding to the Xinjiang library 3128/3129 grade metric lifting price is expected to 14,000-14,500 yuan / ton, the overall view, the current spinning profit or 300-500 yuan / ton, compared with the situation in November 2022 Much better. By the epidemic prevention and control policy optimization, consumption is expected to rebound, spinning enterprises after the holiday not only start rate recovery faster (some enterprises have resumed work and production on the fourth day of the month), and yarn prices to raise the will is strong, is expected to be the recent ring spinning yarn tentative raise amplitude in 300-500 yuan / ton.

The core factors affecting cotton prices in the future will gradually switch to "low valuation repair, marginal improvement in consumption and next year's planting area reduction", international cotton prices are likely to shock rebound. The global market, cotton consumption continues to downward adjustment, has offset most of the tight recession risk. U.S. drought and flooding, extreme weather to hedge against the expansion of production increases, if India's production is less than expected, global cotton production in 2022/23 may be a small reduction. Cotton grain ratio is at an all-time low, with an area reduction bias going forward.

These three core factors, support the U.S. cotton shock rebound. Domestic market, high inventory overlapping with abundant production, supply pressure, but the acquisition cost curing near 13,000 yuan / ton, providing bottom support. November began, the domestic epidemic prevention liberalization, reference to foreign experience, 2023 domestic cotton consumption may be a strong recovery. Low valuation to attract capital inflows, the current Zheng cotton and the overall commodity ratio is still at historically low levels, domestic and foreign cotton prices are still inverted, valuation repair market will continue. These three core factors, support the Zheng cotton shock rebound. Risk factors, mainly from policy, area and weather, need to continue to track.