World cotton production is expected to rise 6.8 per cent with yields rebounding in several countries and area also rising, according to the first projections for 2019-20 season released by the US department of agriculture (USDA). In the US, cotton production is expected at 22.5 million bales, based on higher planted area and sharply lower abandonment.
The outlook for China shows imports, consumption, and production projected up, while stocks are expected to fall for the fifth consecutive year. “With the decline in China’s stocks, stocks outside of China are projected to increase significantly. As a result, the average A-Index and the season-average US farm price are expected to decline,” the Foreign Agricultural Service of USDA said in its ‘Cotton: World Markets and Trade’ March 2019 report.
World trade is projected to expand, bring it near the record levels seen in 2011-12 and 2012-13. Much of the increase is expected in China as smaller sales from the State Reserve reduce available domestic supply, meaning that higher imports will be needed to close the gap, the report said.Global consumption in 2019-20 is expected to continue growing, but at a rate slightly below its long-run average based on weaker global economic growth.
Meanwhile, for 2018-19 season, cotton production is forecast up slightly, led by larger crops in Brazil and Pakistan more than offsetting lower production in Australia. Trade is projected down slightly on lower imports for Indonesia and lower exports for Brazil. Global use is virtually unchanged. The US forecast is unchanged. The US season-average farm price is lowered 2 cents to 70 cents/lbs.
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.
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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.
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