Cotton futures help China’s cotton industry develop with high quality
Good news came from the recently held 2021 China International Cotton Conference: the recovery of the textile industry has driven an increase in cotton consumption. The latest survey by the China Cotton Association predicts that national cotton consumption in 2020/2021 will be 8.1 million tons, an increase of 5.9% from the previous year. “Although some Western countries have interfered and disrupted the international supply chain of the cotton industry and textile and apparel industry, I have observed that China’s cotton industry chain has closer cooperation with the world.” Yuan Haiying, senior adviser to the International Cotton Association of the United States, told the Economic Daily reporter.
Behind the brilliance of “Chinese Cotton”, “futures power” plays an important role.
Collaborative development of futures and spot markets
Cotton is an important strategic material. my country’s cotton futures were launched on June 1, 2004, which was a milestone event in the history of China’s cotton development. “When my country’s cotton futures were first launched, the trading volume was only a few tenths of that of U.S. cotton futures. But now, the trading volume of China’s cotton futures is several times that of U.S. cotton.” Ji Guangpo, chief expert of the Shanghai International Cotton Trading Center, recalled this way.
“Before the futures were launched, when many cotton-related companies did importexport trade with foreign businessmen, foreign businessmen would negotiate with us by referring to the US cotton futures price plus the basis difference. , we felt very passive at that time. At the same time, after the cotton price was liberalized in 2000, the purchase price was very chaotic for a while, and the industry urgently needed a pricing guidance tool.” He Xiyu, president of China Cotton Group Co., Ltd., told reporters.
As changes in supply and demand intensify, cotton price fluctuations increase, traditional trade cannot avoid the risk of price decline, and the risk management needs of market operators have increased significantly. In 2004, cotton futures on the Zhengzhou Commodity Exchange came into being, kicking off the coordinated development of the cotton futures spot market.
In 2019, cotton futures entered an active period, and the entire cotton industry recognized the need to use financial derivatives such as futures or options to avoid price risks.
“Futures Power” serves the entire cotton industry chain
China Cotton Group is the first national-level leading agricultural industrialization enterprise in the cotton industry and one of the largest cotton trading companies in the country. According to the seasonal and rhythmic characteristics of cotton acquisition, processing and operation, China Cotton Group adopts business strategies such as proportional hedging and basis price difference. Through refined operations, it has achieved “expected profits, growth in scale, and controlled risks.” . During the 2020 epidemic, China Cotton Group used hedging in the futures market to achieve growth in business scale against the trend while stabilizing production and supply. Cotton business volume increased by 31.4% year-on-year.
This is a reflection of the good functioning of the futures market. In the past two years, cotton futures ranked first among agricultural products in the functional evaluation organized by the China Securities Regulatory Commission. All the top ten cotton-related companies in Xinjiang participate in futures trading. Cotton futures have become the pricing center of domestic cotton trade, futures prices have become the basis for spot trade pricing, and basis prices have become mainstream in spot trade. In terms of horizontal comparison, the trading volume of Zhengzhou Commodity Exchange’s cotton futures ranks first among similar products in the world, and it has great international influence.
“The cotton industry chain can be said to be the longest.” Yuan Haiying said that the most prominent feature of the cotton industry is that the industry chain is very long, involving cotton planting, acquisition and ginning, circulation and trade, yarn processing, and weaving. Printing and dyeing, clothing and many other aspects. Huang Hongyu, president of Henan Tongzhou Cotton Industry Co., Ltd., said that real enterprises are afraid of the sharp rise and fall in raw material costs, and most hope that cotton prices will be stable. However, the factors that affect cotton prices are very complex, and cotton prices fluctuate greatly, which requires efficient risk management tools to avoid risks. “Reasonable and effective prices are needed to ensure the smooth operation of the industrial chain and continuous backward transmission.” Huang Hongyu said.
So, how does the futures market serve the stability of the cotton industry chain? Chen Minghong, deputy general manager of Chinatex Group Co., Ltd., said in an interview with reporters that the core functions of the futures market are price discovery and hedging. These two points are fully utilized in the cotton market: First, futures prices have become a guideline for cotton-related matters. It is an important indicator for all parties to arrange production and operation activities. Second, the use of futures tools for hedging has become a winning “magic weapon” for modern cotton companies to avoid risks.
At present, my country’s futures instruments involving cotton include not only cotton futures, but also cotton yarn futures and cotton options. The “toolbox” for physical enterprises to choose from is even richer. Chen Minghong said that thanks to the increasing maturity of the futures market, futures tools are no longer limited to serving enterprises. Due to the introduction of mechanisms such as “insurance + futures”, the futures market is also moving towards exerting more macro-control functions.
“Futures are a voltage stabilizer for manufacturing companies and a weather vane for consumer companies.” He Xiyu told reporters that cotton purchasing companies and trading companies rely on futures to avoid risks and stabilize operations, and the rise and fall of futures prices is a factor. A must-see indicator for textile factory procurement. “The further role of futures will play, it will also become a ‘booster’ for the transformation and development of production companies, and a ‘ballast stone’ for consumer companies to seize the market.” He Xiyu said that this requires physical companies in the industry chain to further do a good job in industry and finance. combine.
Take advantage of the situation and regulate the market
Affected by factors such as tight global cotton supply and demand and continued recovery in downstream demand, my country’s cotton futures prices will generally show a slight upward trend in 2021. Relevant data show that this year’s cotton futures price volatility is 13.85%, while the volatility of black varieties during the same period is 34.54%, and the volatility of colored varieties is 20.42%.
Needless to say, large cotton companies, small and medium-sized enterprises have also begun to deepen the application of the futures market, learned to walk on two legs, and their ability to resist risks has been continuously enhanced. Its relatively mature operating model is to obtain seed cotton acquisition funds through warehouse receipt pledge financing, and entrust large traders and risk management subsidiaries to perform hedging to lock in profits and avoid risks, and then use basis trade, rights-containing transactions and other methods. Relying on the trade model derived from cotton futures and options to sell cotton. It is understood that CITIC Futures Xinjiang Branch alone served hundreds of spot companies through similar methods in 2019.
Cotton textile Enterprises have huge financing needs. More and more enterprises regard warehouse receipt financing as an important way to solve the difficulty of enterprise financing and expensive financing. They use on-site warehouse receipt discounts Financing can be carried out through various financing methods such as deposits and deposits, over-the-counter warehouse receipt pledge repurchase, and commercial bank warehouse receipt pledge loans. In 2020, the cotton futures warehouse receipt trading volume of Zhengzhou Commodity Exchange’s over-the-counter platform reached 1.1898 million tons, with a transaction value of over 14.780 billion yuan, providing funds of 6.6 billion yuan to cotton industry customers.
China’s cotton industry has always called for the establishment of international trade pricing and bargaining power that matches the size of my country’s cotton market. Currently, on the basis of continuously improving thequality of on-site market operation, Zhengzhou Commodity Exchange has launched an off-site comprehensive business platform and established an international textile product derivatives with rich varieties and complete tools. Trading Center. The person in charge of the relevant departments of Zhengzhou Commercial Exchange told reporters that Zhengzhou Commercial Exchange will further provide detailed services to China’s cotton industry and create a brand image of cotton futures. At the same time, we will strengthen bank-future interoperability, actively guide banks to connect with cotton-related enterprises, reduce the financing costs of cotton-related enterprises, and broaden financing channels. In the next step, the international development of cotton futures will also be explored.
In response to the problem of bulk commodity prices rising too fast, macroeconomic control is taking comprehensive measures. Ye Jianchun, chief engineer of the China Cotton Textile Industry Association, said that textile companies hope that cotton prices will be relatively stable. “Slow Niu” on a stable basis is most beneficial to the entire textile industry, and they are most taboo about price fluctuations.
Cotton is a special commodity and a seasonal agricultural and sideline product. After the acquisition, the cotton fibers were converted into industrial raw materials to ensure sustainable industrial production. Low cotton prices will hurt farmers and affect their enthusiasm for planting. The textile industry is also a “business card” of my country’s industry and is a major export earner. For China’s textile industry, it is particularly important to manage cotton price risks.
He Xiyu said that fluctuations in commodity prices should be treated in categories. Cotton prices must operate within a reasonable range. “It can not only stimulate the enthusiasm of cotton farmers to grow cotton, meet the production needs of textile enterprises, but also enable textile enterprises to be competitive internationally, then this price is appropriate.” He said , in February and March this year, U.S. cotton futures prices hit a record high. At present, my country’s cotton futures prices are at a stalemate with US cotton prices. “Chinese cotton will definitely develop in a high-end direction in the future. And the application of futures financial derivatives tools still has a long way to go.” Experts said.
AAA
Disclaimer:
Disclaimer: Some of the texts, pictures, audios, and videos of some articles published on this site are from the Internet and do not represent the views of this site. The copyrights belong to the original authors. If you find that the information reproduced on this website infringes upon your rights and interests, please contact us and we will change or delete it as soon as possible.
AA
