Cotton leads the price cut "Storm" cotton prices fall good apparel companies

With the recent decline in agricultural product prices, macroeconomic controls have started to curb the irrational elements in the upstream market. Since early November, the government has taken aggressive measures, including releasing large quantities of stock, and a series of price-stabilization policies were swiftly implemented. As a result, agricultural product prices have experienced a sharp drop under strong regulatory pressure. Since November 10, cotton and sugar prices—once volatile—have seen a dramatic decline. White sugar and cotton prices have both fallen by more than 10%, with cotton dropping as much as 20%. This marks a sharp reversal from earlier trends, where prices had been fluctuating since mid-September before suddenly plunging in mid-November. On November 26, China’s cotton price index (328 cotton) stood at 26,681 yuan per ton, down 4,621 yuan/ton or 14.76% from its peak of 31,302 yuan/ton on November 11. On November 11 and 12, cotton prices fell for two consecutive days, continuing their downward trend. The closing price of the Zhengzhou Commodity Exchange’s cotton contract (1109 main contract) reached 26,365 yuan/ton, down 20% from its peak of 33,500 yuan/ton on November 10. According to the National Development and Reform Commission, domestic bulk commodity prices have sharply declined since November 12, with cotton experiencing the steepest drop. At the same time, sugar prices also fell rapidly. Within just two weeks, the price per ton dropped nearly 1,000 yuan. The closing price of the Zhengzhou Commodity Exchange’s sugar contract (SR1109) was 6,535 yuan, down 11.52% from its November 10 high. In Chengdu’s Tianya Shi Cai Market, local vegetable prices have significantly decreased. For example, spinach prices dropped from around 4 yuan/kg to 1.5 yuan/kg. A vegetable vendor told reporters that prices had risen earlier due to a lack of local produce, with most items coming from outside the region. Now that local vegetables are available, prices have naturally dropped. The once-hyped “garlic” and “ginger” markets have also seen a sharp decline. One shop owner said, “This year’s garlic prices have dropped from several cents to a dollar. There was drought in the first half of the year and flooding in the second, leading to low yields. Some traders hoarded goods, but the prices didn’t rise much. After a month, they came down.” Another shop owner mentioned that when ginger was expensive, they avoided buying it out of fear of not being able to sell. In response to the falling cotton prices, Sichuan-based clothing companies have felt relief. Yang Shuqiong, Secretary-General of the Sichuan Provincial Clothing Industry Association, explained that since mid-September, soaring cotton prices put pressure on many manufacturers, some even hesitating to take orders. With over 400 member companies, nearly 70% were significantly affected by the price surge. Yang noted that while branded companies with larger profit margins face less impact, many Sichuan clothing firms operate on processing and bulk orders. Raw material price increases caused factory prices to rise by 30% to 40%, but to maintain stability, companies only raised ex-factory prices by 10% to 15%. “Many companies end up absorbing the cost,” she added. She believes the drop in cotton prices is good news for the industry. Experts suggest that resolving the supply-demand imbalance is key. Li Panfeng, director of research and development at Baker, stated that the fall in agricultural product prices is partly due to national macro-control measures suppressing irrational market behavior in the upstream sector. In November, the central bank raised the deposit reserve ratio twice, signaling a tightening of credit to manage inflation expectations. Additionally, the government introduced various price-stabilizing measures, which helped cool down speculative trading in commodity and spot markets. However, it's important to note that this irrationality doesn't necessarily mean speculative capital. Li Panfeng also pointed out that while the regulations have shown immediate effects, they cannot fully resolve the short-term supply-demand imbalance. Instead, they may shift demand forward. Looking ahead, the current balance between supply and demand for cotton suggests that previous price levels will be hard to surpass.

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