Hedging space of new cotton and spot cotton market situation

3. Hedging space of new cotton and spot cotton market situation

In South Xinjiang, the new cotton is mainly for wadding, with favorable sales and high prices, so ginners basically have no stock at hand. Therefore, though price spread between hand-picked cotton costs and ZCE major cotton contract is large, the cotton for spinning on hedging is limited. After machine-picked seed cotton is harvested, traders have large hedging space, so the shorts enter the futures market, leading to sharp fall of ZCE cotton futures. Since the National Day holiday, machine-picked seed cotton prices move up quickly, leading to lower hedging space. Currently, the harvests of machine-picked seed cotton are drawing to a close, and prices stabilize, while hand-picked seed cotton prices keep upward, and its costs are higher than that of machine-picked ones.

For new cotton on spot market, ginners reflect that micronaire of hand-picked cotton is high this year, mostly above 5.0NCL, and cotton with strength above 29gpt is also limited. Offers that are ginned previously are mainly at 12,350-12,500yuan/mt conditioned weight, and grade-2128 cotton that is ginned at present is ay 12,800yuan/mt conditioned weight. Quality of machine-picked cotton is relatively good overall in North Xinjiang, micronaire 4.5-4.8NCL, trash content within 2%. New cotton offers are stable to rise mostly under higher costs, but with the on-going consumption, the cotton prices may gain more support from the costs.

Summary: currently, ginning costs of machine-picked cotton have risen to 12,700yuan/mt gross weight in North Xinjiang on theory, up about 2000yuan/mt from Sep 30, and that of hand-picked cotton are about 12,800yuan/mt on theory in South Xinjiang, up 1300yuan/mt from Sep 30. The picking of cotton crops in North Xinjiang is drawing to a close from Oct 20, and seed cotton prices have limited upward space, while prices of hand-picked seed cotton in South Xinjiang are still on the rise. Under current costs, new cotton is hard to do hedging on the futures market. With the consumption of previous low-costs cotton, cotton prices may gain some support from the costs.