Cotton-related exchange traded notes are in a bear market, with cotton futures trading at a five-year low and extending their longest losing streak in over half a century, as increasing supply outstrips waning demand.
The iPath Dow Jones-UBS Cotton Subindex Total Return ETN (NYSEArca: BAL) fell 0.9% Friday while iPath Pure Beta Cotton ETN (NYSEArca: CTNN) decreased 1.4%. Since the May high, BAL has plunged 24.8% and CTNN declined 22.9%.
ICE cotton futures were down 0.7% Friday, trading around $0.6561 per pound.
Cotton futures were set to drop for the 12th consecutive week, the longest slump since July 1959, Bloomberg reports. The soft commodity has declined 23% so far this year.
Harvests are expected to exceed demand for the fifth straight year as subdued global growth weighs on consumption. The International Monetary Fund downwardly revised global growth to 3.4% from 3.7% in April, the Wall Street Journal reports. Cotton prices are sensitive to economic data since demand is tied to consumer spending on basic items like apparel, bed sheets and towels.
“The main driver is worries over demand given the poor economic data we’re getting,” Erik Tatje, market strategist for RJO Futures, said in the Bloomberg article. “We also have decent supplies in the U.S. and record world stockpiles. I don’t see any kind of bottom yet.”
The U.S. Department of Agriculture stated that global inventories next year will rise 5.1% from 2014. [Commodities ETFs Crushed]
U.S. cotton production during the season that begins Aug. 1 is expected to increase by 10% to 16.5 million 480-pound bales, compared to expectations of a 4.7% rise from June’s estimates.
Moreover, cotton production in India, the world’s second-largest grower, is expected to hit an all-time high after monsoon rain delays caused farmers to switch out soybean and peanut crops, Bloomberg reports.
Higher Indian output “is going to add more supply to the global market,” Michael Smith, the president of T&K Futures & Options, said in the Bloomberg article. “The last thing cotton needs at this point is more bearish news.”
However, China, the world’s top producer and consumer of cotton, may sop up some of the extra supply between September and December, with spinners requiring fresh domestic supplies or imports due to low inventories and lack of high-quality cotton, Reuters reports.
iPath Dow Jones-UBS Cotton Subindex Total Return ETN
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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.