Looking For A Good Machine In The Cotton Oscillating Market

Factors affecting cotton prices in 2012

Macro economy: the global economy will be in the process of slow recovery in 2012, but

Industrial policy: the industrial policy of 2012 will continue to play an important regulatory role and effectively prevent cotton prices from skyrocketing and plummeting.

It is estimated that the total volume of storage will exceed 3 million tons this year, or even half of the output of new cotton, which will push cotton prices down.

In addition, under the background of strong and weak cotton prices, the quota policy of cotton imports (i.e. quantity and rhythm) will play a more important role in adjusting domestic cotton prices.

Market supply: collecting and storing, providing imagination for market supply, and low cotton price affects cotton growers' enthusiasm for planting.

Cotton production was severely suppressed in cotton production in 2011/2012. Below the expected seed sale price, the actual benefits of cotton farmers were harmed. It is widely expected that cotton production in 2012 will be reduced by about 9%.

However, the state did not limit the purchase and storage, which made the supply of the market in 2012 become more and more confusing. The gradual increase in the total volume of storage and acquisition has made the market anticipate stronger cotton futures, and the far month contract will continue to be supported by this.

The following important concerns: the market response at the end of the closing period; the cotton planting intentions in 2012; and the key long-term weather conditions of cotton.

Market demand: textile demand will remain stable, and total cotton demand is expected to be around 9 million 500 thousand tons.

The textile industry is the main demand of cotton. In the background of the slowdown in textile and clothing trade and even a slight shrinkage and the potential of domestic sales, the domestic textile industry will maintain a stable position in 2012.

Important concern: 2, 3, 8, September, textile enterprises to replenishment of the impact of cotton prices.

Market structure analysis

Tracking the current price spreads, the difference between inside and outside cotton prices, the price difference between different contracts between Zhengyang and cotton, and the trend of related varieties, we can find low risk opportunities and risk hedging strategies in time.

The difference between the current price of cotton in normal period is between 0 and 1000. When the price difference exceeds the upper and lower limit, there will be a current arbitrage opportunity.

From the perspective of past years, there are generally two or three such risk free arbitrage opportunities in a year.

At present, the price of domestic cotton is obviously stronger than that of imported cotton, and the internal and external cotton price is as high as 1.15.

Driven by the price of domestic cotton, there is a rising demand for imported cotton.

There is still room for profit in reverse arbitrage between the 1205 and 1209 contracts. The current base -470 is expected to reach -600 or even -1000.

Outlook and investment strategy

To sum up, there are many factors that affect the trend of cotton price in 2012. There are also great uncertainties in the trend of each factor. However, it can be judged that cotton prices in 2012 are hard to get out of the big market trend of unilateral rise in 2010 and unilateral fall in 2011.

Investment strategy: first, before the arrival of the temporary storage and closing date (March 31, 2012), Zheng cotton will maintain a narrow oscillation and gradually increase its center of gravity. It is expected that the oscillation interval will be at [2000022000], and speculators can maintain the band operation ideas in the far month contract 1209. The spot traders can sell the value at 1205 contracts to stabilize their profits. Second, from April to the new cotton market, the total volume of cotton purchase and storage, the planting expectation and growth, the textile industry warming, and the progress of the import cotton quota will all affect the trend of cotton prices. It is expected that the amplitude and frequency of the cotton price will increase and the oscillation interval will be [1850025000].

Prudent investors can consider intertemporal arbitrage strategy: as the market expects less cotton for the future, the demand for selling 1205 and buying 1209 basis difference will continue to weaken. The minimum target -600 can even be reduced to -1000.