The iPath Bloomberg Cotton Subindex Total Return ETN (NYSEArca:BAL) is among the commodities exchange traded products getting drubbed this year. BAL is off more than 9% over the past month and labors 21.2% below its 52-week high, putting it in bear market territory.
Data suggest some commodities traders are remaining bearish on cotton, potentially putting more of a squeeze on the already faltering BAL. The cotton market has remained depressed for years on uncertainty over large Chinese state reserves as Beijing hoarded cotton to build up a price support program for farmers India, the largest cotton producer, has imported bales to restock after heavy exports last year. Indian farmers have also suffered through damaging pests and late monsoon rains.
“A look at the most recent Commitment of Traders report shows that large speculators reduced the size of their net-long position by almost 1/3 during the reporting period ending June 20. The reduction of the non-commercial net-long position by over 25,000 contracts last week reduces the overall net-long position to just over 59,000 contracts. Commercial traders were mainly on the other side of the large speculators’ trade, having reduced their net-short position by over 27,000 contracts to net-short 57,700 contracts,” according to OptionsExpress.
Cotton prices are sensitive to economic data since demand is tied to consumer spending on basic items like apparel, bed sheets and towels. The dollar remains an issue for commodities ETFs, particularly amid intensifying speculation that the Federal Reserve could raise interest rates for a third time later this year.
“Bearish traders have been in control of the Cotton market for much of the month of June, as prospects for an increase in global production have kept pressure on prices. The USDA is forecasting 2017-18 global production at 114.7 million bales, up 8.7 million bales from last season. Here in the U.S., the USDA is forecasting Cotton production at 19.2 million bales which, if accurate, would be an increase of approximately 2 million bales. While on the surface it appears that the fundamentals tend to skew towards lower Cotton prices this year, Mother Nature may have other ideas,” according to OptionsExpress.
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