Basic economics dictates that a drop in supply will raise prices. Natural disasters and farmers calling it quits have reduced the supply of cotton, which has provided a nice boost to the cotton exchange traded note (ETN).
Cotton prices have increased 36% in the last two months as a result of floods in Pakistan and China, as well as farmers shifting to more profitable crops, reports Gary Firth for Online PR News. [Why the Cotton ETN Isn’t Shrinking.]
The result has been some tremendous gains for iPath Dow Jones-AIG Cotton Total Return Sub-Index ETN (NYSEArca: BAL) which is up 39.1% year-to-date. [5 Reasons You Shouldn’t Discount ETNs.]
That growth may continue for some time, too. Officials of India’s cotton industry, the world’s second-largest producer after China, announced that cotton exports may be delayed to mid-October as a result of lower stockpiles and dwindling inflows of new crop, according to Financial Express.
Cotton futures in New York hit a 15-year high in September on investment and mill purchases. Analysts believe the rising futures prices is more of a result of speculative buying. [Commodity ETF Strategies for the Jim Rogers Bull.]
For more information on cotton, visit our cotton category.
Max Chen 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.