Cotton ETN Surges as Drought Decimates Crops | ETF Trends

Cotton prices and a related exchange traded note have surged over the past month as drought conditions decimate crops, with the latest harvest expected to be the smallest in 13 years.

The iPath Series B Bloomberg Cotton Subindex Total Return ETN (BAL) was 3.0% higher on Tuesday and surged 27.7% over the past month. Meanwhile, ICE cotton #2 futures were up 2.9% to $1.1685 per pound.

According to the United States Department of Agriculture’s latest crop production report, the U.S. cotton harvest will come in at around 12.57 million bales, or the smallest since 2009, with Texas, the largest cotton-producing state, accounting for the almost 5 million bale shortfall in production year-over-year.

Texas cotton harvests could come in at around 2.9 million bales, compared to 7.7 million over 2021, with conditions in the state so severe that growers could abandon two of every three acres planted during the spring. According to the USDA, abandonment rates across the southwest were “historically high.” Overall, U.S. production declined 28%, or 12.57 million bales, compared to 17.52 million bales in 2021.

U.S. agricultural market watchers warned that the ongoing drought across the U.S. could cause farmers to forgo 40% of 12.5 million acres of farmland, with cotton harvests at their smallest acreage since the Reconstruction Era, or 1868, the Wall Street Journal reported.

Some areas of the U.S. are suffering through the hottest weather on record, which has dried up farm fields, causing farmers to call it quits as it is no longer economically feasible to sustain some farmlands.

For example, farmer Brent Nelson in the Texas panhandle is only using 280 of his 5,000 acres of land. He noted that his fields only saw about 3 inches of rain since last August, compared to an average of about 17 to 18 inches of rain annually.

Consequently, more farmers are abandoning crops and relying on federal crop insurance to sustain themselves.

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