The sharp decline in cotton prices that started in mid-November has continued, and the drop has been even more severe than the previous rapid rise. On the 23rd, the cotton price index fell another 1.7%, closing at 27,881 yuan per ton. Since November 12, the index has fallen for eight consecutive trading days, with a total decline of over 10.9%.
This dramatic fall has hit middlemen who were trying to profit from cotton speculation, causing their wealth to shrink significantly. On the 22nd, Qin Qin Zhanhua from Binzhou Zhanhua expressed deep anxiety and emotional pain about the situation.
As the cotton market tumbles, many small players are feeling the pressure. Hua Qinxing, who runs a small lint processing plant, is one of them. He still holds 30 tons of lint, but the ongoing price slump has left him deeply worried. On Tuesday, the cotton price index dropped by 474 yuan/ton to close at 28,355 yuan/ton, marking the eighth consecutive day of declines since November 11. The cumulative drop now exceeds 3,421 yuan/ton.
For Hua Qinxing, this means his costs and revenues are both under pressure. The purchase price of raw cotton directly affects his production costs, while the lint price determines his income. According to data from Zhuo Chuang Information on the 22nd, the current purchase price of cottonseed in Shandong is 5.8 yuan/kg, down nearly 20% from the peak of 7.2 yuan/kg earlier this year. Meanwhile, the ex-factory price of lint has dropped to just 26,000 yuan/ton, far below its recent high of 31,500 yuan/ton.
Not long ago, the lint price surged rapidly, reaching an all-time high of 31,500 yuan/ton. At that time, “making clothes was not as profitable as holding cotton,†and the gains from the price surge outperformed many other industries struggling with rising labor costs and currency appreciation. Hua Qinxing was among those who believed in this trend.
On October 27th, he decided to stop selling lint and wait for further price increases, despite the high cost of seed cotton, which had risen to around 6.4 yuan/kg. “The risk of buying at 6.4 yuan/kg was already high,†he recalled, but the soaring lint prices made it hard to resist. Many traders rushed to buy cotton, while some lint factories even stopped selling lint and focused on purchasing raw cotton instead.
At the time, Hua Qinxing was convinced that cotton prices would continue to rise. “The price has been going up sharply,†he told the newspaper. “I was watching the market and entering the bottom of the cotton trade.â€
That was indeed the case. On the day before October 27th, the purchase price of cotton in major producing areas like Shandong, Xinjiang, Hebei, and Anhui reached 6 yuan/kg, with the cotton price index closing at 26,205 yuan/ton. Since September 2nd, the index had been rising for 30 consecutive trading days, climbing from 18,012 yuan/ton to a record high of 31,302 yuan/ton, a gain of over 74%.
The sharp drop in cotton production due to bad weather was considered the main driver of the price surge. On September 28th, during an interview in Binzhou, Zhanhua, a top cotton producer, said that local cotton yields had dropped by over 50% due to continuous rain.
Xiong Qinwang, a partner of Hua Qinxing in the lint factory, also spoke to the newspaper on that day. He mentioned that rising cotton prices had caused cash flow problems for the factory, forcing them to pay farmers with IOUs. Some businesses were even considering taking loans to survive.
“At that time, even small profits were better than nothing,†Xiong said. But these profits have vanished with the price crash that began on November 12. By November 22nd, Hua Qinxing lamented that his business had essentially gone to zero. With the price of lint falling from 31,500 yuan/ton to 26,000 yuan/ton, the value of his 30-ton stock dropped by 165,000 yuan. He also noted that many local cotton farmers suffered heavy losses, with some losing millions.
According to Zhao Hong, a cotton analyst at Zhuo Chuang Information Technology, the cotton industry is currently in a state of desolation. “Whether it's companies or traders, everyone is watching closely,†he said. He added that recent government policies aimed at curbing price surges, including measures like increasing cotton shipments from Xinjiang and banning illegal acquisitions, have contributed to the downward spiral. Additionally, the tightening of liquidity due to two deposit reserve rate hikes in nine days has further pressured the market.
However, some analysts believe that with the overall supply-demand imbalance remaining tight, cotton prices may rebound later this year. “I don’t need to worry about selling my remaining lint,†Hua Qinxing said on the 22nd, adding that even though he couldn't predict how long the current policy adjustments would last, “it’s still worth taking a loss now.†In his view, the volatile nature of cotton prices—marked by sudden swings—has turned cotton operations into a high-risk, high-reward game.
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