Market Analysis: Cotton In Reverse Market Adverse Corporate Hedging

 

When the price of the near month contract in the futures market is lower than that of the far month contract, that is, when the futures price is in a rising state relative to the spot price, it is called a positive market; When the price of the near month contract is higher than that of the far month contract, that is, the futures price is in a discount state relative to the spot price, it is called the reverse market.

Forward market and reverse market are common market structures in futures market, but they can cause different reactions of investors. Since the term structure of futures market is directly related to the formulation and implementation of hedging and arbitrage strategies, the research on the term structure of futures prices is of great practical significance.

As an important strategic material in China, cotton price stability is not only of great significance for people's livelihood, but also plays an important role in the development of China's economic security. However, since 2021, affected by multiple factors at home and abroad, cotton prices have risen sharply. However, due to the collapse of terminal consumer demand, it is difficult to raise the price of the downstream grey fabric end. The overall price transmission mechanism of the industrial chain is not smooth, and the profit space of the cotton mill is further compressed.

In the traditional positive market, enterprises can carry out forward hedging according to the traditional thinking. However, in terms of this year's cotton market, due to the high cost of new flowers collected by ginners, Zheng cotton futures price has been in a large discount state relative to the spot price. If the price exposure of futures is too large, if the price position of enterprise hedging intervention is not ideal, it will not only not achieve the original purpose of avoiding risk, but also enlarge the business risk of the enterprise, so reverse market is more difficult for enterprise hedging operation. Taking domestic cotton futures as an example, this paper analyzes and demonstrates the term structure of futures market, which has certain reference significance for reality.