Discussion over cotton and cotton yarn purchasing strategy and participation in futures
——Lu Xiuli, Raw Material Manager of Sunvim Group

 

As an agricultural product, cotton has strong volatility cycle in prices. Mrs. Lu analyze how enterprises use financing tools to avoid risks and stabilize costs on cotton and cotton yarn procurement. 

Firstly, buying hedge for purchasing. When the product sales contracts are signed, the feedstock costs rise will lead to sales profits reduction or losses. Determine bottom line purchasing price of cotton or cotton yarn based on downstream profit expectation, convert the total procurement amount of feedstock into the monthly virtual purchasing amount, and buy the monitored volume in futures market each month to hedge. If cotton or cotton yarn price rise to above the hedging bottom line, the virtual procurement without hedging shall be fully hedged. Close the hedge position when spot goods is purchased. 

Secondly, selling hedge for inventory. After pricing cotton, production cost is basically determined. During the period from import to product sales, unfavorable price fluctuation may result in declining sales profit or even losses. Selling purchased raw materials to hedge as product sales price is uncertain. 

Thirdly, cotton industry chain profit arbitrage and case analysis. Mrs. Lu says that the purchasing time is a guarantee for the successful arbitrage. 

Lastly, she introduces the features of different cotton, and shares about the cotton and cotton yarn procurement strategy and experience.