【Jiantou Strategy】The rotation wind is blowing toward agricultural products. How to understand the current industry details?

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Author | CITIC Brokerage Futures Research and Development Department　　Author: Tian YaXiong

Report completion date | March 24, 2026

Futures trading consulting business qualification: CSRC License No.〔2011〕1461

Recently, the market has shown the “commodity rotation” appearance, with the overall agro-products sector being restless, but this is more a resonance of sentiment under macro narratives. Once you look past the surface, the core drivers of each variety have already diverged profoundly; rotation is only the “result,” not the “cause.” The real contradictions are concentrated in two main lines: first, the “intra-industry endogenous cycle” represented by live hogs and eggs, where the price core depends on the timing of domestic capacity clearing and the game within the industry; macro shocks only marginally affect their costs and mindset. Second, the “external cost-driven” logic centered on cotton, white sugar, oils and fats, bean products, and some soft commodities: they are deeply linked to energy prices and geopolitics through chains such as biodiesel, fertilizers, and ocean shipping, so the pricing anchor has already, at least in stages, detached from their own supply-demand balance. Therefore, the key to investing in agro-products right now is not trying to forecast the rotation sequence, but precisely identifying whether each variety’s dominant contradiction is “industrial reality” or “cost-push inflation,” and rigorously verifying the industrial details involved (such as live hogs’ culling/holding weights, Brazil sugar-to-ethanol ratio, Indonesia palm oil policies, cotton domestic and international price spreads, etc.).

Cotton: Divergence between domestic and overseas markets and a cost dilemma

The core contradiction in the current cotton market is the tug-of-war between an extremely high domestic-versus-overseas price spread and weak downstream demand. Domestic cotton prices are already at a high level, but it is difficult for downstream cotton yarn to pass on price increases; spinning profits have remained negative, and price transmission is severely impaired. At the same time, this year’s domestic cotton output has actually been adjusted, showing a pattern of a bumper harvest, while the demand side is simply “nothing remarkable.” Exports are constrained by the external environment, and domestic demand shows only a seasonal rebound, so overall market conditions still need validation.

The core factors supporting domestic cotton prices lie in the high planting costs and policy backing. Cotton planting costs in Xinjiang rise year by year, and Xinjiang also benefits from a target price subsidy policy. This means that even in years when profits are poor, cotton farmers’ planting willingness is relatively rigid. For example, in 2026, Xinjiang’s cotton production target is only a moderate decrease of 9.2% compared with 2025. Area reduction is slow. However, this creates an awkward situation where “cost support is strong, but upward driving force is weak.”

Therefore, the key to any upward move in cotton prices in the future may lie in the pull from overseas prices. Domestic prices have already moved up first; what remains is for international cotton prices to “catch up” and restore the domestic-versus-overseas spread. The main risk points are: first, low-priced imported cotton yarn may flood into the market, disrupting the domestic shortfall logic; second, the current inventory structure in the industrial chain is distorted (upstream inventory shifts to midstream, while downstream product inventory is low). If seasonal peak demand is refuted, it could trigger downside pressure through a negative feedback loop.

Logs: A cost-driven contest against weak reality

Recently, the log market has been mainly driven by expectations of rising import costs caused by geopolitical conflicts. The situation in the Middle East has pushed up international oil prices and shipping costs (including premiums and freight), leading to higher overseas (CFR) quotations. The market’s trading logic has shifted from fundamentals to expectations of cost increases, thereby strengthening the domestic futures market.

However, this sharply contrasts with the weak reality of domestic demand. Downstream demand is deeply tied to real estate starts; there are no signs of improvement yet. The market shows a bifurcated pattern of “weak in the north and strong in the south”: northern ports face heavy arrival pressure, and downstream inventory is sufficient, so spot prices have little ability to follow up; fewer arrivals in the south keep prices relatively firm. Overall, downstream processors purchase only as needed and have very low acceptance of high prices.

Looking ahead, the log market will be entirely determined by the contest between cost expectations and weak reality. If ocean freight stays high or continues rising, cost logic will support prices; conversely, if shipping costs stabilize or fall, market logic will quickly revert to the fundamental reality of weak demand, and prices will face downward correction pressure. Traders should closely monitor whether US-dollar quotations can remain stable above $130 per cubic meter, as well as domestic downstream buyers’ actual acceptance.

White sugar: Expected trading under energy premium

The current white sugar market has already moved away from a bland fundamental landscape; its core driver comes from the premium expectation transmitted by crude oil—through the “ethanol-sugar” chain. In a high-oil-price environment, the value of fuel ethanol as a substitute for gasoline rises, which will change Brazil sugar mills’ capacity allocation decisions in the new crushing season, and the market expects their sugar-to-ethanol ratio to be lowered. Currently, international raw sugar prices are trading at a 2–3 cents per pound premium versus the ethanol-equivalent sugar price, which is exactly what the market is pricing.

Both domestic and overseas markets show a clear split. Overseas markets are strongly pricing energy and the expectation logic, while the domestic market is relatively rational because it is still in the peak supply season for domestically produced sugar (Guangxi sugar costs about 5,300–5,500 yuan per ton) and the import profit window has opened, suppressing price gains. The key validation point is whether high oil prices can successfully transmit to Brazil’s domestic gasoline prices (currently its domestic retail price is about 40% lower than import costs), thereby effectively lifting ethanol prices and providing a real basis for lowering the sugar-to-ethanol ratio.

Future price direction depends on validating expectations. Before Brazil’s new crushing season starts in April, the market will mainly trade expectations, and raw sugar prices are likely to be swayed by oil-related sentiment. After the start of the crushing season, it is important to closely watch the biweekly report data to verify whether the sugar-to-ethanol ratio is indeed reduced as expected. If the Brazilian government suppresses domestic gasoline price increases to control inflation, then the current upward logic may face the risk of being disproven.

Paper pulp: Linked volatility under平淡 supply and demand

The paper pulp market is currently in a state where both supply and demand are weak and contradictions are not prominent. On the supply side, there is no significant disturbance. On the demand side, downstream sectors such as cultural paper and household paper are steady, with no standout upside surprises. Port inventories are at a neutral level: there is neither strong动力 for rapid de-stocking nor pressure for continuous accumulation.

Therefore, the paper pulp market lacks endogenous driving force; its price fluctuations are more linked to macro sentiment and related commodities than to its own fundamental shocks. As an internationally traded bulk commodity, paper pulp has strong financial attributes. In recent trading, its movement has a relatively high correlation with expectations for ocean freight costs and volatility in energy-chemical commodities like crude oil, rather than a fundamental contradiction breaking out on its own.

Looking ahead, it is expected that paper pulp prices will continue to maintain a range-bound, oscillating pattern. For upside movement, it would need to see downstream end demand recover beyond expectations, or an unexpected contraction on the supply side. For downside movement, it is supported by import costs. In the absence of independent drivers, the strategy should mainly focus on swing trading, emphasizing how the support and resistance levels at the upper and lower ends of the range perform.

Live hogs: Grinding out the cycle bottom; waiting for the turning point

The live hog market is currently going through a round of deep cyclical bottom-grinding. The core reality is that spot prices have fallen nationwide below the 10 yuan/kg threshold, hitting the lowest level in nearly a decade, and the entire industry is suffering severe losses. However, because feed costs have declined, the current per-head loss for purchased piglets for fattening is about 200–300 yuan, which is actually less severe than the extreme situation in October 2025 when losses were 500 yuan per head. Meanwhile, average live weight for hogs being sold has risen to about 125 kg, significantly higher than the historical average. This reflects substantial holding (over-conditioning/delaying sales) and the pressure of passive inventory. In terms of policy, recent measures have been strengthened: major enterprises are explicitly required not to expand against the trend, and authorities are trying to ease supply pressure by standardizing the on-market slaughter/dispatch weight (target 120 kg).

In the near-term market, multiple negative factors are intertwined, and March to April is the time window with the largest supply pressure within the year. To see spot prices stabilize, two key signals need to be observed: first, the price itself stops falling; second, the average live weight for hogs marketed declines rapidly. After the Spring Festival, the willingness for second-round fattening and for frozen products to be stocked has been low, so it has not formed an effective support. The industry is still digesting high inventory levels. Therefore, even though prices have reached a low level, the negative-feedback spiral driven by industrial reality is unlikely to be broken in the short term.

Looking ahead, the market’s core contradiction lies in the contest between “weak reality” and “the expectation of capacity clearing.” Deep industry losses and policy constraints are meant to drive further capacity reduction. Although the current loss magnitude has not reached historical extremes, continued bottom-grinding is expected to accelerate this process. The market has expectations for November and onward for longer-dated contracts, believing that the force of the cycle may drive a fundamental improvement in the supply-demand structure. In strategy, near-month contracts are constrained by reality pressures, while long-dated contracts provide opportunities for initiating positions at favorable prices and betting on a cyclical turning point.

Eggs: Weakly driven oscillation; watch for structural opportunities

The egg market is currently in a “weakly driven oscillation” pattern, with limited room for trend-type moves within the year. The core logic is that capacity is in a gradual de-capacity process, but the pace is less than expected. After the laying-hen inventory peaked at the end of Q3 2025, it began to decline slowly, but the replenishment volume for the full year of 2025—1.01 billion birds—remains high, leading to a capacity reduction far smaller than the 2020 cycle (when replenishment was only 0.876 billion birds). On the cost side, due to geopolitical conflicts, higher prices of corn and soybean meal push egg-chicken feed costs up to about 3.17 yuan per jin, providing a price floor.

The key to future capacity changes is an increase in elimination (淘汰) volume. Because of breeding cycles, the centralized replenishment of laying hens in the second half of 2024 corresponds to the elimination period entering in the second quarter of 2026. Recently, high culling-hen prices (peaking at 5.23 yuan per jin) have also stimulated producers’ willingness to cull. It is expected that as culling accelerates, inventories of laying hens on hand in the second quarter (April to June) may see a phased decline, which will support spot prices and may create structural long opportunities.

Therefore, the market outlook leans toward range-bound oscillation and structural opportunities. You may look for long allocation opportunities in the 05 and 07 contracts when they are trading deeply at a discount or when prices are extremely pessimistic on the board. However, there are uncertainties in the second half of the year: the replenishment volume in January–February 2026 is not low, which may lead to incremental capacity coming online in the second half and constrain the decline space for on-hand inventories. At the same time, the premium for long-dated contracts is relatively large, so one should be cautious about the pressure brought by industry hedging positions. Overall, within the year the egg market will mainly trade the game of a slow capacity reduction cycle, rather than a strong one-way driver.

Researcher: Tian YaXiong

Futures trading consulting practice information: Z0012209

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