Save and fill up the domestic cotton market to welcome the change

In April this year, a number of ministries and commissions including the National Development and Reform Commission, the Ministry of Finance, and the Ministry of Agriculture issued news that the target price for cotton in 2014 was 19,800 yuan/ton. At this point, the implementation of the three-year cotton purchase and storage policy has been put to a close. This also unveiled a new prelude to the game of all parties: the Direct Subsidy Policy is officially on the stage, and where will the market's hands lead the domestic cotton market?

The implementation of the Target Price Direct Subsidy Regulations was pending. At the beginning of January this year, the Central Document No. 1 proposed for the first time that a target price subsidy program for cotton was launched in Xinjiang, ie, the country set a target price for cotton. When the market price was higher than the target price, the subsidy was low. Revenue consumers; and when the market price is lower than the target price, the farmers are subsidized by the difference. According to the Ministry of Finance website, the target price for cotton in 2014 was 19,800 yuan/ton, approved by the State Council.

“This target price is basically within the market's expectations and can ensure that Xinjiang growers have certain benefits after removing costs. However, agricultural products (000061, stocks) have never implemented target prices, so everyone is waiting for local implementation rules.” Sun Liwu, an information analyst, told the Gold Securities reporter. This rule is in accordance with the farmers planting area or in accordance with the production subsidies, how to implement long-staple cotton and fine cotton. With the acceleration of land transfer, the separation of land contracting rights and management rights is common. Is the target spread a supply contractor or operator? These questions have yet to be answered.

Policy hand retired "guaranteed price" is not insured (rest assured)

Once Xinjiang’s implementation rules were actually put into place, the general manager of an Anhui cotton processing company confided to reporters, “I cannot imagine where domestic cotton prices will fall.”

Beginning in 2011, China began implementing the temporary cotton purchasing and storage system. The main points of this policy are: firstly announce the price of stocks and plans for storage before the spring broadcast, and second, change from limited storage to open storage. Although this move has played an important role in stabilizing cotton prices and protecting the interests of cotton farmers, the market has lost its ability to allocate resources freely because of temporary purchase and storage. According to data provided by Sun Liwu to “Jin Securities”, as the collection and storage price of the new cotton set in the 2013/2014 season was much higher than the global and domestic cotton market prices, 92% of the new cotton in the domestic season went to the treasury. This also led to the lack of cotton in the market. The middlemen were almost unprofitable. The textile companies were having a hard time and the industry started a "collapse of closures."

It can be foreseen that there will be no temporary purchase and storage policies to support the market, and the market demand will be low, and prices outside Xinjiang will face severe impact. The "Golden Securities" reporter learned that at a recent institutional exchange meeting, Wang Zoujin, the chief editor of First Textiles Network, analyzed that according to the prevailing rules, subsidies for specific products do not exceed 8.5% of the relevant annual GDP of the product. Therefore, in 2014, the maximum direct credit limit for cotton by the Chinese government was 13 billion yuan***. According to the 2014 Xinjiang cotton production of 4.3 million tons, an average of 3,000 yuan per ton of lint per ton, that is to say the minimum price of the national subsidy cotton is 16800 yuan / ton (ie 19800-3023). Therefore, it can be considered that 16800 yuan / ton is the low-risk area for policy protection.

However, the aforementioned general manager of the cotton processing company seemed disapproved. “The market and policy are not at this pace. Nobody can tell.” The only placebo is that before the listing of the new cotton in September, whether Xinjiang or the Mainland 2013 is new The stock of cotton is almost empty, and the price market cannot be formed. During this period, the market supply will be mainly provided by the sale of state reserve cotton. In view of the State Reserve Cotton standard cotton base price of 17,250 yuan / ton, the spot market price of cotton in recent months will fluctuate around this price, not much.

Sun Liwu also revealed that the relevant departments of the country and the cotton industry associations have held intensive meetings in recent days. The focus of discussion is on the attributes of cotton prices returning to the market. Once the market price has fallen below 16,800 yuan/ton, does the government have to support the city and how should it support the market?

It is understood that in the case of unclear policies and insufficient terminal orders, the downstream cotton spinning companies are cautious, and the enthusiasm for buying reserve cotton at this stage is not high.

In fact, a huge amount of national reserve cotton inventory, like a huge lake, hangs over the top of China's cotton industry chain. Wang Qianjin judged that as of the end of the current year (up to August 31 this year), the total domestic reserve cotton inventories will still be maintained at more than 11 million tons. From the next year, when the annual cotton production will all enter the market. In the next few years, China’s cotton production will remain at around 6.5 million tons, and consumption will continue to hover around 700-750 million tons. Together with the need to maintain a certain amount of cotton imports every year, the State Reserve Cotton will face enormous Inventory pressure. "It is possible that this destocking process will continue for several years, and only if the national reserve cotton is consumed, can we achieve the integration of cotton inside and outside," it said.

Under the pessimistic mood, the domestic cotton market is quietly changing. In the short-term hopelessness of the inclusion of the direct supplement pilot project, Sun Liwu believes that 90% of the new year's cotton production areas other than Xinjiang will be reduced by 20%. Xinjiang cotton market share will become higher and higher from the current 60%.

The general manager of the cotton processing company told the reporter of “Gold Securities” that “at the moment when processing companies have already faced a life or death situation, the company has a sales department, but before the cotton was handed in, there was basically no stable channel for cotton sales. Now we must start over.” As for the cotton spinning companies that had been plagued by domestic distortions in cotton prices, he disclosed that “some of the contacted companies do not say that they are smiling, and they have to directly participate in international competition. They also have a process of adaptation.”

In the interview, people in the industry believe that the drastic changes in domestic cotton will benefit the leading companies in these segments. For example, Lutai A (000726), a yarn-dyed fabric king, processes high-end products and services high-end customers and has certain pricing power. However, due to market capacity constraints, the company is also expanding its brand.