For China’s textile industry, cotton has always been a problem drawing concern from the whole industrial chain. Nowadays China’s cotton textile enterprises have stepped out of the shadow of “sequela from purchasing and storage” and industrial operation also gradually becomes steady. Even though the internal and external economic environments are still unpredictable and market and cost pressure remains enormous, roller coaster-like fluctuation of cotton price in the previous two years has become the past for good. However, does this mean that cotton market has reached an ideal state?

Obviously, there are many just passable obstacles for domestic cotton price to be in line with international price nowadays, like regulation and control of import quotas, variation of State Reserve Cotton, etc. Journalist of this magazine has conducted exclusive interview on Liu Qiannan from light industry department of Galaxy Securities Future to get deep understanding of performance of several major plates of domestic cotton supply market in 2017 as well as the future tendency.

State Reserve Cotton

A unique weapon regulating the market

State Reserve Cotton is a unique product in China. “Reserve releasing” for destocking was continuously implemented in 2017.

Liu Qiannan told the journalist that, “State Reserve Cotton in 2016/17 started being released in March to the end of August, and then it was postponed to end of September, lasting 147 working days. Totally 3,224,000t State Reserve Cotton were dealt, consisting of 1,837,000t Xinjiang cotton and 1,386,000t mainland cotton. 139,600t cotton was dealt in 2011,1,407,000t in 2012 and 1,677,000t in 2013. Average closing price of Xinjiang cotton basically maintained between RMB 15,000 - 15,500/t while that of mainland cotton maintained between RMB 14,000 - 14,500/t. In terms of price, price of Xinjiang cotton with relatively good quality among State Reserve Cotton was still lower than that of prompt new cotton in the market. C32S and C40S carded cotton yarns made by Xinjiang cotton seemed okay, and the fabricated cotton yarn had certain advantages in price over low-end yarn in international market, so Xinjiang cotton in State Reserve Cotton won much favor from textile enterprises. Many textile enterprises with abundant funds conducted auctions in final stage of auction for State Reserve Cotton and some textile enterprises reserved cotton until December and even January in the next year”.

State Reserve Cotton will be released continuously in 2017/18.2017/2018 Rotation Report of State Reserve Cotton released by National Development and Reform Commission pointed out that “output sales of State Reserve Cotton will be started on March 12 in 2018 and deadline is temporarily set as the end of August. Daily listed sales volume will be arranged by 30,000t/day. If domestic and international market prices present obvious rapid rise within a certain period and turnover ratio of State Reserve Cotton at bidding price exceeds 70% for more than three days in a week, daily listed quantity will be appropriately increased, deadline of output sales will be postponed or other measures will be taken to guarantee market supply.”

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Imported cotton

The largest market variation in 2018

On the other hand, cotton market was inactive.Nobody purchased cotton in some cotton areas and purchasing vendors purchased and stopped repeatedly.Intentional cotton plantation area reduced by 9.20%year on year, and intentional area was estimated to reach 6,347,500 mu. There were many overcast and rainy days in initial purchasing stage of new cotton in Yangtze River basin, both cotton yield and quality declined, and meanwhile, starting price of new cotton was lower than that in the last year; after National Day, weather conditions turned to be good, cotton quality was improved, but price declined, so income of cotton planters reduced. Cotton planters were not active in cotton plantation and most of them were still hesitating. Intentional cotton plantation area reduced by 2.21% year on year, and estimated intentional area was 7,301,600t.

For this, Liu Qiannan indicated that∶ “imported cotton in 2017 were still mainly U.S. cotton and Australian cotton with good quality, which supplemented for the shortage of higher-grade cotton in domestic market, but there were few Indian cotton with relatively poor quality. In 2018, variation of imported cotton may be large”. Liu Qiannan gave her explanation that∶“head of department of economy and trade in NDRC Yin Jian expressed on the conference held by China Cotton Textile Association in the end of the last year that quotas management system will be further completed, and how to reasonably distribute and regulate and how to realize greater openness and transparency of information will be the next working orientation.There are more than 5 million tons of cotton in stateowned reserves, where there are 3 million tons of Xinjiang cotton with good quality at most. Being output for a year, cotton in state-owned reserves will be estimated to reach 2 million tons with poor quality. It will be a good choice to purchase imported cotton to improve cotton structure in state-owned reserves and ensure cotton inventory. Therefore, we boldly guess that some cotton will be imported through Sinograin in 2018. If imported cotton will be input in State Reserve Cotton, then this quantity will be hundreds of thousands of tons at least, so imported cotton in next year will be a large uncertain factor”.

Xinjiang cotton

Sharply increasing yield with pressure laid on spot sale

In aspect of commercial inventory, according to investigation conducted by circulation branch of China Cotton Textile Association, total commercial inventory of commercial cotton reached about 4,153,200t in the end of December, where cycle inventory of domestic commercial cotton was 703,700t; cycle inventory of commercial cotton in Xinjiang was 3,394,000t; cotton inventory in tariff-free zones reached 55,000t. National inventory of commercial cotton in the same period of the last year was 3,009,800t, and that in this year increased by 1,143,400t compared with the same period of the last year.

Liu Qiannan expressed that∶ “according to data in previous years, we predict that there are still 5,260,000t State Reserve Cotton currently, where Xinjiang cotton occupies more than a half. As State Reserve Cotton will be continuously output in 2017/18, Xinjiang cotton in state-owned reserves will be reduced and there will be few total State Reserve Cotton, and bidding of State Reserve Cotton among enterprises may be intensified. If releasing time in 2017/18 is continuously postponed to the end of September, turnover of State Reserve Cotton will be even greater. Under this prediction, the release volume of State Reserve Cotton in a new year is anticipated to reach about 3.40 - 3.60 million tons”.

It’s well known that Xinjiang cotton plays a significant role in domestic cotton supply market. As bene fit from cotton plantation was better than any other crop, Xinjiang peasants were very active in planting cotton in 2017, so cotton plantation area increased.In addition, weather conditions in 2017 were suitable for growth of cotton with relatively high per unit area yield. According to data from national cotton trading market, up to 24∶00 on January 30, 2018, cumulative 4,946,000t ginned cotton was processed in Xinjiang,4,869,000t ginned cotton was inspected, and it’s estimated that Xinjiang cotton yield was about 5 million tons.

Cotton yield increased sharply in this year, and quantity of State Reserve Cotton stocked up by textile enterprises was quite large. Liu Qiannan told the journalist that∶ “some enterprises with abundant funds stocked up cotton until December and even January”.Commercial inventory was larger than last year, mainly because new cotton sale was not that ideal. According to data in China Cotton Information Network, totally 1,216,900 tons of cotton was transported through railway and highway for Xinjiang cotton transportation. New round of cotton output will be started on March 12th next year, so there is not much time left for concentrated sale of Xinjiang cotton, Spring Festival is in the middle,so pressure on spot sale is very high”.

Intention of cotton plantation

Inland and Xinjiang, one half is seawater and the other half is flame

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Cotton policy environment in 2018 has similarities with that in 2017, for example, direct subsidy policy is still in force and State Reserve Cotton will still be sold from March. But differences also exist,for example, State Reserve Cotton are also declining by a large margin with less and less high-quality cotton. Large variations also exist in aspect of import quotas in the new year, which indicates that cotton tendency in this new year will have both similarities with and differences from that in the last year.

Increasing intention of cotton plantation in Xinjiang area was mainly because Xinjiang cotton production presented a sound situation with increasing per unit area yield, improved quality and stable income in 2017.Selling price somewhat declined, but per unit area yield increased and rent of soil declined. Income of cotton planters kept stable and intentional cotton plantation area was higher than that in the last year. According to an investigation, local target price subsidy was not granted yet, and cotton plantation area would mostly be determined by final income of cotton planters in later stage. Some regiments in corps were checking soil and staff size. Although cotton plantation area could not be determined for the moment, 98% of farmers hoped to plant cotton. Intentional cotton plantation area of Xinjiang cotton increased by 3.12% year on year, and intentional area was predicted as 29,869,800t. Up to the end of November, sale progress of cotton in Yellow River basin just went over 1/4. On the one hand,cotton planters were reluctant to sell out cotton due to low price. Cotton market got warm again, cotton planters had high expectations for new cotton purchasing price, but starting price was only RMB 7/kg, and the price declined in the middle and later stages, so cotton planters were quite disappointed.

According to the Customs statistics in China,cumulative imported cotton reached 1.11 million tons in 2016/17 (2016.9 - 2017.8) with 15.8% year-onyear growth rate. Yearly cumulative imported cotton reached 1.15 million tons in 2017 with 28% year-onyear growth rate, where there were 506,000t U.S. cotton and 258,000t Australian cotton.

Operating suggestions in 2018

From light industry department of Galaxy Securities Future

Cotton market somewhat warmed again in 2017, and cotton planters had high expectations for cotton price, but purchasing price of new cotton was lower than that in the last year, and cotton plantation intentions were basically equal. From regional scale, both per unit area yield of Xinjiang cotton and earnings of cotton planters somewhat increased with slightly increasing intention. Purchasing price in the inland cotton areas declined all the way with slow sale progress, not high willing for cotton plantation and reduced intentional area.

In December, 2017, cotton planter collaboration branch of China Cotton Association conducted an investigation on intentional cotton plantation area in 2018 for totally 2,290 cotton planter households in 12 inland provinces and 20 areas of Xinjiang autonomous region for the first time.Investigation results showed that∶ national intentional cotton plantation area was 44,190,800 mu with 0.13% year-on-year growth rate, where intentional cotton plantation area of Xinjiang cotton planters increased by 3.12%, and those in Yangtze River basin and Yellow River basin reduced by 2.21% and 9.2% respectively year on year.

Firstly from aspect of cotton supply, State Reserve Cotton are also exerting effect as an impounding reservoir, but as State Reserve Cotton reduce,enterprises’ activeness in bidding and stocking up State Reserve Cotton may be higher in 2018, especially Xinjiang cotton in State Reserve Cotton. If inventory output time will be postponed to the end of September, bidding quantity of the cotton inventory in 2018 will be higher than that in 2017. In aspect of cotton yield, from present data, Xinjiang cotton yield sharply increased in 2017, expecting to reach about 5 million tons which was greater than that in the last year by 1 million tons. State Reserve Cotton stocked by textile enterprises in 2017 were also more than those in the last year.

式中，Fe为单位用水量支撑的农业经济规模（元/m3）；Wd为农业用水总量（万 m3）；Gn为农林牧渔业总产值（万元）。

(2)猜想直线AB必经过定点Q(-2，1)，设过C作EF∥x轴，过点A作AE⊥EF，过点B作BF⊥EF，垂足分别为E，F.可得：△AEC∽有得(m+2)(n+2)=-4，联立AB：y=kx+b和可得：m+n=-2k，mn=2b-10，由(m+2)(n+2)=-4得：2b-10+2(-2k)+4=-4，即：b=2k+1，所以y=kx+b=kx+2k+1=k(x+2)+1，即直线AB必经过定点Q(-2，1).

To sum up the above causes, from present situation, cotton supply in this year will be higher than that in the last year by a large margin. In aspect of consumption, it’s estimated that consumption quantity in this year holds equal to or is slightly higher than that in the last year. Therefore, from supply and demand, due to function of State Reserve Cotton as impounding reservoir, cotton tendency in this year is anticipated to maintain fluctuation within an interval and overall tendency will also be weaker than that in the last year, but market volume of State Reserve Cotton and structure, etc will constitute an important factor influencing tendency of Zhengzhou cotton.

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