ETF Trends
ETF Trends
  • Energy and agriculture commodities are struggling
  • Harvests are expected to exceed demand for the fifth straight year
  • Cotton prices are sensitive to economic data since demand is tied to consumer spending

While industrial and precious metals and the relevant exchange traded products have been impressive performers in the commodities complex this year, other commodities are struggling. Notable offenders include energy, but some agriculture and soft ETPs are off to sluggish starts as well.

That latter group includes the iPath Dow Jones-UBS Cotton Subindex Total Return ETN (NYSEArca: BAL), which is lower by more than 13% this year after stumbling by nearly 11% in just the past month.

BAL was somewhat sturdy last year as other commodities ETFs tumbled in the face of record cotton harvests and a rising dollar. 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.

However, BAL’s slack start to 2016 could be a harbinger of weakness to come. Supply and demand is proving problematic for cotton bulls.

The rise in Cotton acres despite the slump in prices is likely the result of low prices for alternative crops such as Soybeans and Corn. This leaves many producers little choice but to plant Cotton this season. Globally, Cotton demand has been lackluster, with Chinese Cotton imports falling in January. U.S. Cotton exports for the current marketing year are running nearly 20% below the 5-year average for this time of year,” according to OptionsExpress.

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