There is talk of cotton: the slow rise of cotton has begun to show

Since late December, cotton has shifted from a strong six-month trend to a weak oscillation between 27,000 and 29,000 yuan per ton. On the surface, the spot price of cotton has shown a gradual upward movement, rising from 26,900 to 27,500 yuan per ton, but daily gains have been modest. Meanwhile, the price of cotton yarn has steadily declined, with the C32 index dropping from 35,400 to 34,800 yuan per ton, signaling a potential bottom. Market participants are divided, leading to a slow-moving and cautious environment. The profit margin for cotton yarn has swung from 500 to -500 yuan per ton, reflecting intense pressure from both long and short positions. Downstream demand has weakened significantly due to high cotton prices, which has impacted the overall market sentiment. Additionally, there's growing concern about whether the recent rise in Khmer prices will lead to a surge in cotton planting area in the coming season. Reports suggest that enthusiasm for planting is increasing across the country, potentially leading to a rebound in planting areas next year. However, the author believes that such a substantial increase is unlikely. Cotton farming is labor-intensive, and with rising labor costs and young people leaving rural areas for urban jobs, the decline in planting area has been ongoing. For example, in Henan Province, where Fujitsu has established operations, it is expected to attract around 170,000 young workers next year. Without these laborers, the elderly population left behind will struggle to make significant changes in planting scale. Similar situations exist in other provinces. Moreover, even if planting areas expand, it doesn't guarantee higher yields, as weather conditions remain a critical factor. From the perspective of major funds, signs of buying interest are emerging. As of January 4, 2011, the top ten net positions increased from 1,454 to 9,213 contracts, indicating that major players are positioning themselves in the current range-bound market. Based on historical patterns, this often signals a potential rally in cotton prices. In terms of supply and demand, the tightening of cotton supply remains a clear trend. According to reports from local spot companies, procurement has become more difficult, and inventory levels are low. The U.S. Department of Agriculture’s December supply and demand report indicated a 400,000-ton gap in China’s cotton supply for 2011, although this is less than the 1.2 million tons in 2010. The supply shortage still exists, partly due to large-scale imports. Additionally, consumption-driven price pressures from the Khmer market continue to influence the market. The recent rebound in U.S. cotton has outperformed domestic cotton, with the FC Index briefly surpassing 30,000 yuan, and it has remained above 29,000 after a slight drop. The inflationary pressure from imported cotton persists, making the market vulnerable to fluctuations. Based on these observations, the author believes that cotton prices may gradually rise in the near future. A good strategy would be to take multiple positions at lower levels and lock in profits during rallies. The price trend could become more pronounced once textile companies start resuming operations after the Spring Festival. During the period around April, caution is advised, as the bear market may see renewed hype and volatility.