I. Zhengmian (China's cotton futures contract)

(1) Positive Factors

1) Currently, the price difference between domestic and international cotton is significantly divergent. Xinjiang cotton, as the cheapest cotton globally, has a relatively low probability of a sharp drop. This significant price divergence is favorable for domestic cotton price increases.

2) The epidemic situation is significantly easing, and consumption is expected to recover significantly. With Shanghai's reopening imminent, the Shanghai Municipal Government's release of the "Action Plan for Accelerating Economic Recovery and Revitalization" on Sunday will effectively and orderly promote the acceleration of economic recovery and revitalization. Beijing also announced on Sunday that there were no new locally transmitted cases for two consecutive days, and Zhengzhou also announced the achievement of "double zero."

3) Currently, spinning mills' raw material inventories are at their lowest level for the same period in history, creating an expectation of replenishment. In the previous cycle, futures prices fell, and spinning mills significantly increased spot transactions, proving that spinning mills indeed have a need to replenish inventories. In the future, if cotton prices remain low, spinning mills may significantly replenish their inventories.

4) Reduced raw material costs, and spinning mills' immediate profits have turned from negative to positive. With the decline in futures prices, the actual delivered price of cotton purchased by spinning mills has decreased, spinning mills have begun to have cash flow, immediate profits have turned positive, and expectations for increased production capacity among spinning mills have strengthened.

(2) Negative Factors

1) The repayment pressure on cotton ginning plants has increased, facing an approaching settlement deadline, increasing the pressure to sell cotton. Banks require cotton ginning plants to repay by the end of July, resulting in increased selling pressure due to nervous sentiments among cotton ginning plants.

2) Significant pressure from social inventories, and spinning mills' finished product inventories remain at their highest level for the same period in history. There is significant pressure from spinning mills' finished product inventories; if sales improve later, downstream operations will primarily focus on destocking.

3) As of May 19, the sales progress of Xinjiang cotton was 49.3%, lagging behind by 47.7 percentage points year-on-year. A large amount of unsold cotton has exacerbated the sales pressure and sentiments of cotton ginning plants, leading to a proactive sales attitude from cotton ginning plants.

II. American Cotton

(1) Positive Factors

1) India's daily cotton arrivals have decreased to 12,000 bales (approximately 2,000 tons), making the reduction in production a reality. According to recent daily arrival figures, India's cotton production may be around 5.24 million tons, exacerbating the tight supply and demand situation in India.

2) The sales volume of apparel in the US terminal market is still rising, showing no signs of turning, indicating the US terminal market sales remain strong.

3) Although the downstream market in Southeast Asia has weakened, it is still sending inquiries and continuously purchasing cotton, which provides support for American cotton prices.

(2) Negative Factors

1) The continuous rainfall in Texas over two consecutive days last week significantly alleviated the drought. Texas is expected to continue experiencing rainfall from Tuesday to Friday, reducing speculation regarding weather conditions.

2) In the financial market game, long positions have not continued to exert force, and net long positions of funds have decreased compared to the previous period. In the week of May 24, the net long positions of funds decreased by 4 percentage points to 35%, and the absolute amount of non-commercial long positions decreased by 4,578 contracts compared to the previous period.

3) The high level of unpriced contracts has fallen back, and the volume in July has decreased compared to the previous month. The volume of unpriced contracts in July decreased by 8,000 contracts compared to the previous month, further weakening the possibility of a squeeze in July.

4) Indian cotton prices have fallen from high levels, with cotton prices falling for two consecutive weeks. The operation of spinning mills in the Indian market continues to weaken, with orders shrinking. If the Indian market turns around, the fundamental support for cotton prices may no longer exist.

Summary: At the macro level, the latest data for April shows that the growth rate of the US M2 money supply fell from 9.92% to 8.2%, indicating a faster decrease in the amount of money in circulation; however, the existing stock remains, supporting the continuous setting of new highs for the CRB index of external commodity markets. China continues to introduce stimulus policies; both the policies and attitude indicate a willingness to stimulate the economy; however, it remains questionable whether the real economy can truly "revive." From a fundamental perspective, it is still a situation of external strength and internal weakness, but both domestic and international markets are showing marginal weakening. Speculation on external weather conditions is gradually decreasing, with two consecutive weeks of rainfall in Texas alleviating the impact of the drought on the market. In terms of financial market games, net long positions of funds and unpriced contracts continued to decrease. The pattern of weak operation in the domestic market is certain, facing repayment pressure from the dual settlement deadline, increasing selling pressure from cotton ginning plants, and it is difficult for prices to rise.

Points to Watch: Rainfall in Texas