Cotton ETN Lifted by Flooding
February 2nd, 2011 at 12:00pm by Tom Lydon
Cotton prices were already sky-high when flooding ravaged Australia, and they’re still rising. The cotton exchange traded note (ETN) isn’t the only way to get your fix, though.
Investors have been betting on continued gains in iPath Dow Jones-AIG Cotton Total Return Sub-Index ETN (NYSEArca: BAL). Considering that in the last year it’s gained more than 160%, you can’t blame someone for feeling a little bullish. Already this year alone, it’s shot up 20.3%.
- Leslie Josephs for The Wall Street Journal reports that the latest floods in Australia have sent cotton prices flying. The country is the seventh-largest producer of the fiber.
- Flooding in Pakistan has also hit the crop, perhaps even harder, given that the country is the fourth-largest producer.
- Adverse weather has now sent cotton futures up to records
- Cotton futures on the ICE Futures U.S. touched $1.6789 a pound during intraday trading on Tuesday. Records from the Mississippi Historical Society show cotton at $1.89 a pound during the peak of the Civil War. [Commodity ETFs: Are They Too Popular?]
- Fiona Bond for Interactive Investor reports that the United States has already sold most of last year’s crops and supplies, but way more is needed to keep step with demand from countries like China and India. [Cotton ETN Benefits As Supplies Wane.]
The cotton ETN isn’t your only choice for playing the white fiber, though. True, it’s the only pure-play way to focus on the crop – the ETN is a basket of cotton futures contracts – there are other indirect ways to get your fix, says Sumfolio:
- Since many farmers are making way to grow more cotton on their land and profit from the high prices, agriculture companies could be in a position to benefit as sales increase. ETFs such as Materials Select Sector SPDR (NYSEArca: XLB) and Market Vectors Agribusiness (NYSEArca: MOO) are two good ways to get a large amount of exposure to the major agriculture suppliers.
- The other sector to watch – retailers – is a situation that’s more in flux. The rising prices are only just now beginning to trickle down, and many retailers have said they’ll raise their own prices to keep the hit to a minimum. That, unfortunately, leaves ETFs like SPDR S&P Retail (NYSEArca: XRT) in a bit of limbo as we wait to see how retailers and customers react.
For full disclosure, Tom Lydon’s clients own shares of MOO.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.