In the past one year, transactions of cotton yarn futures were not active and the participation was not high. Zhengzhou Commodity Exchange published the revision of cotton yarn futures delivery rules on Mar 4. According to the revision, delivery subjects of cotton yarn futures expanded and the quality of benchmark product also changed significantly.
Firstly, the indexes of benchmark delivery product of cotton yarn futures were adjusted, especially the actual twist factor. The product allowed to be delivery changed to the cotton yarn for weaving from the one for knitting and the one for weaving. And other indexes moved closer to those most cotton yarn mills can achieve and downstream weavers can accept.
Secondly, warehouse delivery was also allowed besides previous delivery factory. In addition, delivery factories in Hubei and Hebei were added, increasing market participants of cotton yarn futures and improving the trading activeness.
Thirdly, the definition and inspection method of foreign fiber content changed. The machine testing was used instead of original manual testing, which was more accurate.
Besides, the revision of delivery rules also changed the standard of substitute and premium.
#??#
In the meantime, the validity term of cotton yarn futures warehouse receipts were shortened. The concentrated cancellation time changed from Feb, Jun and Oct to Feb, Apr, Jun, Aug, Oct and Dec.
The open interest limit was also lowered. The revision above will be implemented since contracts for Oct’19.
It is predicted that cotton yarn futures will be more active amid the further improvement of delivery rules, especially traders included which can hedge through cotton yarn futures directly. According to CCF Group, most cotton yarn mills or traders hedge through ZCE cotton futures. Taking example by mature on-call transactions of cotton futures, the financial characteristics of cotton yarn will improve.
#??#
The Center for Advanced Studies on Applied Economics (CEPEA)/ESALQ cotton Index, with payment in 8 days, dropped 0.35 per cent between January 31 and February 28 to close at 2.9318 BRL per pound at the end of the month. The average price in February was 2.9341 BRL per pound, 0.96 per cent lower compared to the previous month, in real terms.
Prices oscillated and liquidity decreased in the market during the month due to the fierce competition between the Brazilian agents, CEPEA said in its latest fortnightly report on the domestic cotton market.
“Part of the active purchasers was searching for high quality batches, but bidding prices were lower than asking prices. Other purchasers, however, accepted lower quality cotton. Some processors, in turn, stayed out of the market during the entire month,” the CEPEA report said.
According to data from the BBM (Brazilian Commodity Exchange) tabulated by CEPEA, 67.5 per cent of the 2017-18 Brazilian crop, estimated at 2.005 million tons, may have been traded until February 28. Of that total, 57.7 per cent was bought for use in the domestic market, 30.9 per cent for export to the international market, and 11.3 per cent to flex contracts (exports with an option to sell in the Brazilian market).
For the coming season, at least 22.3 per cent of the 2018-19 production (forecast at 2.564 million tons by Conab – National Company for Food Supply) may have been traded in the same period, with 47.5 per cent allocated to the domestic market, 26.4 per cent to exports, and 26.1 per cent to flex contracts.
