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Insight | Time: Sep 29 2020 10:00AM
Seed cotton prices stay high, and new cotton quality triggers worries
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In early Sep, hand-picked seed cotton in South Xinjiang starts to arrive and trade on the market, and around Sep 15, machine-picked seed cotton in North Xinjiang also kicks off its trade. Seed cotton prices have been constantly increasing after the arrivals of new cotton. From Sep 25, prices fall down somewhat, but the prices face resistance to decrease later as ginning capacity in North Xinjiang has risen largely this year, and ginners are expected to seize the seed cotton actively. In addition, according to current inspection indicators, the quality of new cotton is unfavorable. The ginning yield of machine-picked seed cotton is high, and the length and strength of lint has been affected. The quality in early period is mostly below 28mm and 28gpt.

Seed cotton prices
1. Hand-picked seed cotton in South Xinjiang
In early Sep, procurement of hand-picked seed cotton begins in South Xinjiang. In early period, the seed cotton is mainly for wadding, and prices have risen from 6yuan/kg in early Sep to 6.8-6.9yuan/kg, and the ginning costs of lint for wadding are about 14,000yuan/mt on theory. Nevertheless, its selling prices are mostly at 14,000-14,200yuan/mt by Sep 24, so ginners that process the cotton for wadding can break even at least, and some ginners with low processing costs may have a profit of 500yuan/mt, which is better than the situation of cotton for spinning. Later, the seed cotton for spinning is procured gradually around Sep 23, and the hand picking progress is slow, so the purchasing volumes are limited. By Sep 24, its prices are lowly at 6.1-6.2yuan/kg, and ginning costs to lint are around 13,100-13,300yuan/mt on theory, which is much higher than the cotton futures, but close to the market price. However, the purchasing volumes remain limited, and prices have not been clear overall.

2. Machine-picked seed cotton in North Xinjiang
Machine-picked seed cotton in North Xinjiang starts to be procured successively around Sep 15, and in early period, prices are mixed, at 5.1-5.5yuan/kg with ginning yield of 40%. On Sep 19-Sep 23, prices move up quickly, at 6yuan/kg or above with ginning yield of 42-43%. The ginning costs to lint are highly at 13,500yuan/mt, much higher than the cotton futures and market prices. From Sep 24, some ginners in North Xinjiang begin to set ceiling price of machine-picked seed cotton, to be no more than 5.65yuan/kg, and the moisture content is no more than 15%, some no more than 20%. Therefore, prices move lower slightly. Nevertheless, as the ginning capacities have risen largely this year, the competition to seek for seed cotton is fierce. Prices may face resistance to fall down. Currently, prices of seed cotton with ginning yield of 40% is lowly at 5.4-5.5yuan/kg, and ginning costs to lint are around 12,800-13,300yuan/mt on theory.

New cotton quality
According to the inspection by factories, due to high ginning yield of machine-picked seed cotton, its cotton length and strength is affected, to be mostly below 28mm and 28gpt. The cotton quality is yet not stable at present. The quality of machine-picked cotton shall be paid high attention. If the cotton quality fails to improve later, then the quality cotton supply may tighten.

Currently, there is still old cotton to be digested, but if the new cotton costs are higher than the market prices and cotton futures for long time, the new cotton is easy to be not available on the market, and if the cotton quality fails to improve later, the quality cotton supply will tighten directly. Cotton users shall pay attention to the prices of seed cotton and new cotton quality.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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