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 the beginning of November, the government has been actively intervening by releasing large volumes of stock, and a series of price-stabilization measures have been swiftly implemented. As a result, agricultural product prices have experienced a sharp drop under strong regulatory pressure. Since November 10, cotton and sugar prices—previously showing signs of fluctuation—have plummeted dramatically. The prices of bulk commodities such as white sugar and cotton have fallen by over 10%, with cotton experiencing the steepest drop at nearly 20%. By November 26, China’s cotton price index (328 cotton) reached 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 cotton contract (1109 main contract) was 26,365 yuan, down 20% from its high of 33,500 yuan on November 10. According to the National Development and Reform Commission, domestic bulk commodity prices have sharply declined since November 12, with cotton being the most affected. Meanwhile, sugar prices also dropped quickly, falling nearly 1,000 yuan per ton in just two weeks. The closing price of the Zhengzhou Commodity Exchange sugar contract (SR1109) was 6,535 yuan, down 11.52% from its peak on November 10. In Chengdu’s Tianya Shi Cai Market, local vegetable prices have significantly dropped. For example, spinach prices fell from about 4 yuan/kg to 1.5 yuan/kg. A local vegetable trader explained that prices had risen earlier due to a lack of local produce, with most vegetables coming from outside the region. Now that local supplies are back on the market, prices have naturally decreased. Even previously volatile items like garlic and ginger, which had caused much public concern, have seen significant price drops. One shop owner noted that this year's garlic prices were only a few cents to a dollar, citing a drought followed by heavy rain, which led to low yields. Some traders held onto their stocks, but the price increases were not substantial. After a month, the prices finally came down. Another shop owner mentioned that when ginger was at its highest, they chose not to buy it out of fear of not being able to sell. The drop in cotton prices has also impacted the apparel industry. Yang Shuqiong, Secretary-General of the Sichuan Provincial Clothing Industry Association, told reporters that rising cotton prices since mid-September have put pressure on many clothing manufacturers in Sichuan, some of whom even avoided taking orders. With over 400 member companies, nearly 70% have been significantly affected by the price surge. Yang explained that while branded clothing companies with higher profit margins face relatively smaller impacts, many Sichuan-based firms engage in processing and group purchases. The rise in raw material costs has increased factory prices by 30% to 40%, but to maintain stability, most companies only raised ex-factory prices by 10% to 15%. She believes the return of cotton prices is good news for the apparel sector. Experts suggest that resolving the supply-demand imbalance is key. Li Panfeng, R&D Director at Baker Research, stated that the fall in agricultural product prices, driven by national macro-control and the suppression of irrational upstream market behaviors, is an important factor. In November, the central bank raised the deposit reserve ratio twice, signaling a tightening of inflation expectations through credit control. Additionally, the government has implemented various price-stabilization measures, which have helped cool down the speculative atmosphere in commodity and spot markets. However, it should be noted that irrationality doesn’t always equate to speculative hot money. Li Panfeng also pointed out that while the regulation has had an immediate effect, it cannot fully resolve the short-term supply-demand contradiction. It may instead push demand forward. From a market perspective, current cotton supply and demand have reached a balance, making it unlikely for previous high prices to be exceeded again.

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