Best of the Week
Most Popular
1.UK General Election Exit Polls Forecast Accuracy - Nadeem_Walayat
2.What's Next for the Gold Price? - Axel_Merk
3.UK House Prices Correctly Forecast / Predicted Conservative Election Win 2015 - Nadeem_Walayat
4.15 Hours to Save England from SNP Scottish Nationalist Dictatorship - Election 2015 - Nadeem_Walayat
5.Exit Poll Forecasts Conservative UK Election 2015 Win - Nadeem_Walayat
6.Gold And Silver China’s Pivotal Role: More Questions Than Answers. Not So For Charts - Michael_Noonan
7.Conservative Win 2015 UK General Election, BBC Forecast of 329 Seats - Nadeem_Walayat
8.Investing and the Lollapalooza Effect - Niels C. Jensen
9.Gold Price Target - Rambus_Chartology
10.Gold Price Nearing An Important Pivot Point - GoldSilverWorlds
Last 5 days
Are We in Another Credit Bubble? And Is It Different than Before? - 23rd May 15
The “Real Flash Crash” Will Scare You to Death - 23rd May 15
Venezuela: No Rule of Law, Bad Money - 23rd May 15
Robots That Can Beat the Market by 100% - 23rd May 15
Why Shake Shack Stock Is a Bad Investment - 23rd May 15
Gold Price Primary Driver Bullish - 23rd May 15
Time To Get Real About China - 22nd May 15
Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - 22nd May 15
One Investment Could Save Two Generations' Retirements - 22nd May 15
Investing is About Identifying Gifted and Talented Camps - 22nd May 15
One of Europe's Latest Debt Nightmares - 22nd May 15
UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - 22nd May 15
America Superpower 2016 - 21st May 15
Stock Market Secular Versus Cyclical Investing - 21st May 15
Banking Stocks Break Out with Higher Bond Yields - 21st May 15
The Tech Portfolio Built to Beat the Market - 21st May 15
Gold “Less Sexy” Than Bitcoin … For Now - GoldCore on CNBC - 21st May 15
The Russia-West Rivalry in the Balkans - 21st May 15
The US Dollar and the Precious Metals Complex - 21st May 15
Gold GLD ETF Drawdown Continues Unabated - 21st May 15
Who’s Killing the Stock Market? - 21st May 15
Your Best Way to Profit from the Narrowest Market in 20 Years - 21st May 15
Government Regulation and Economic Stagnation - 20th May 15
It’s Time to Hold More Cash and Buy Gold - 20th May 15
Choppy Asian Stock Markets - 20th May 15
Countdown to Global Financial Collapse - 20th May 15
Will Interest Rates Ever Rise? - 20th May 15
How to Cash in on Amazon Stock’s Amazing Cloud Success - 20th May 15
Three Hidden Forces Pushing Crude Oil Price Back Up - 20th May 15
U.S. Housing Market Strong Numbers in Perspective - 20th May 15
Greece Debt Crisis - Obama Has A Big Fat Greek Finger - 20th May 15
Now Is the Time to Own the Oil & Gas Leaders - 20th May 15
UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - 20th May 15
Trading Gold and Silver along with the Pros - 19th May 15
Gold Ticks Higher as London Housing Market Crash Looms? - 19th May 15
Global Stock Market, Commodities Group Analysis - 19th May 15
How Stock Investors Could Profit from the Dark Net Pattern That Few Others See - 19th May 15
The Patriot Act is now USA Freedom Act - 19th May 15
Investing in Europe? 5 Critical Insights to Boost Your Portfolio Now - 19th May 15
Gold Price Trend Forecast - 19th May 15
Stock Market Continues Defying Gravity, Dow New All Time High - 19th May 15
Are Gold and Interest Rates About To Take Off Higher? - 18th May 15
Nikkei Japanese Stock Index Set To Get Smashed - 18th May 15
Silver Price Projections For 2020 - 18th May 15
The IMF Leaks Greece, Institutions Forcing a Debt Default - 18th May 15
Europe's Stocks Bull Market Continues After Correction - 18th May 15
European Banks Vulnerable Today As 2008 Financial Crisis - 18th May 15
Payments, Currencies, and Broken Money - 18th May 15
Learning to Trade Markets - Dealing with Losing Trades - 18th May 15
Stock Market Sell in May and Go Away - Last Hurrah - Take2 - 18th May 15
The No. 1 Reason Stocks Will Climb Higher - 17th May 15
Gold, Silver Distorted Markets, Financial Sophistry, and Moral Hazard - 17th May 15
Stock Market CAC40 Trend Forecast - 17th May 15
Stock Market Diagonal Pattern Nearly Complete - 16th May 15
Gold And Silver - Elite's Game Of Jenga In Place. Your Move - 16th May 15
You’ll Never See a Better Moment to Invest in China - 16th May 15
Are Gold and Silver Stocks Breaking Out? - 16th May 15
War On Cash - Why the IRS Seized All the Money from a Country Store - 16th May 15
Is China Economy a Fire-Breathing Dragon or a Dragon on Fire? - 16th May 15
Silver Buying Only Starting - 16th May 15
Why Opinion Pollsters Got UK Election 2015 Badly Wrong - 15th May 15
Double Black Diamond - What a Bond Bear Market Looks Like - 15th May 15
This “Bubble” Is Set to Kick Off New Energy Profits - 15th May 15
German Gold Demand "Spikes"- Investment Demand Surges 63% - 15th May 15
How GDP Metrics Distort Our View of the Economy - 15th May 15
McDonald's Future Is Hard to Digest (NYSE: MCD) - 15th May 15
Dry Bulk Shipping Index Chart Analysis Update 2015 - 15th May 15
Economic Expansion Ahead? World Stock Markets Analysis - 15th May 15
Why Not Tell Greece How To Run A Democracy? - 15th May 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Biggest Debt Bomb in History

Investing in Cotton: The New “King” of the Commodities Sector

Commodities / Commodities Trading Sep 24, 2010 - 05:46 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleJack Barnes writes: Gold is grabbing the headlines setting daily record highs. Silver is setting an-even-more-torrid pace. Wheat and coffee - American breakfast table staples - are surging due to bad weather around the world.

But there's another commodity that's up big: It's surged as much as 55% in the last 12 months to reach its highest price level in 15 years. And there's plenty more to come: Global demand far outstrips supply, creating an imbalance that won't be solved anytime soon.


I'm talking about cotton, the "new" king of the commodities sector.

"We have an extremely bullish situation," Mississippi State University Prof. Emeritus O.A. Cleveland said during a recent Ag Market Network conference call. Cleveland, a noted agricultural market economist, said prices could climb another 30% or more due to the ongoing supply/demand imbalances in play worldwide.

One Big Breakout
With all that's happened with gold, silver, coffee and other commodities in recent weeks, institutional investors are tossing the term "breakout" around with impunity. But here's the reality: When you examine the facts, it's cotton that's poised to make one of those historic breakout moves that traders live for.

"The fundamentals have gradually gotten tighter, tighter, tighter," Gary Raines, vice president in charge of economics and analysis for Nashville-based FCStone Fibers & Textiles, told The Financial Times.

When I think about cotton, four factors support my projection that prices are headed much higher:

•Global demand easily outstrips worldwide supply.
•Global cottons supplies are constrained by the world's two largest exporting countries each having to deal with a weather-damaged harvest.
•There are very long lead times on replacement crops.
•Prices are at 15-year highs - with "blue sky" (for far higher prices) ahead.
"Demand continues to grow; it's the supply that's in question," says Ronald Lawson, managing director of L.O.G.I.C. Advisors, a Sonoma, Calif.-based commodities-consulting firm.

It's a "triple-whammy" of weather events that's led to this supply crunch.

Three Strikes to Cotton Supplies
The first of the three strikes to hit global cotton supplies struck China, the largest producer and largest consumer of cotton. Bad weather there damaged the cotton crop, which prompted Beijing to ramp up imports in order to feed the country's textile factories.

"From the buying pattern we have seen out of China, it would appear that collectively, they may not have seen this rally coming," L.O.G.I.C. Advisors' Lawson told The FT.

This extra demand prompted India, the world's No. 2 exporter, to cap exports. India's cotton crop was also damaged during the heavy monsoon rains. India's leaders have stated that they will put an extremely high level of tariffs on exports above 2 million bales.

Pakistan rounds out this trifecta of cotton-crop calamities. A large cotton exporter in its own right, Pakistan's cotton crop has been badly damaged by the flooding that has seriously damaged that country's expected harvest.

Demand for cotton was already on the upswing anyway. That means that these shortages are expected to have some serious economic implications around the world. The supply shortfalls have touched off a bidding war in the commodity-trading pits, which will affect anyone who buys clothes in 2011.

While farmers will attempt to plant more cotton in the New Year, that's still a growing season away, and won't be enough to slow the price advance in the cotton market anytime soon.

Cotton has such a long "lead time" - one of the longest of any commodity, in fact - here's the reality about prices. From the time new cotton crops are planted, to the time the mature cotton is harvested, processed and sent to a textile factory for production into a T-shirt that you can buy at your local retailer, you're basically talking at least 18 months.

For an investor, that means that there's still plenty of time to profit from the cotton shortfall. This gives us a commodity that is in a prolonged, upward trend - and not a rocket ship whose bullish price moves are likely to end in a spectacular (and risky) blow-off.

What's more, if the 2011 crop is also not a bumper one, we can expect that prices will continue their upward move even longer.

Finally, while cotton is also subject to a major new economic slow down in the economy, like 2008. Cotton has enough of a supply imbalance this year, to absorb a drop in near-term demand.

The bottom line: Cotton looks to be a safer commodity investment at this time.

Cotton Prices - Where Do We Go From Here?
Historically, cotton has averaged 40 cents to 50 cents per pound. But prices have been climbing for a year, now. It has recently traded in excess of $1.00 a pound, and some other experts have publicly forecast prices of $1.25 a pound or more.

If that happens - and I certainly believe it's possible - you can expect the cost of a T-shirt to increase by 20% or more from what you're paying today.

The United States, which exports 80% of its cotton crop, is expected to increase total acres planted in cotton next year, to try and capture some of this move. However, that is still a growing season away.

As I stated above, cotton is poised to make one of those historic breakouts that traders live for. Cotton has the fundamentals in alignment for a continued bullish run. Let's look for a near-term price pullback to use as an entry point.

When that happens, let's capitalize by using some of the investments that I detail in the "Actions to Take" section that follows.

Action To Take: Cotton is currently king in the commodities market. It is trading near a 15-year high in price, with growing demand and a lack of near-term supply. While cotton prices have already advanced - a lot - I believe there is still significant upside potential in the next three months to nine months.

There are a couple of ways to play cotton from here. The first - and most obvious - way for retail investors to join in is to gain exposure to the crop via one of the exchange-traded notes (ETNs) that focus on commodities. Here are two of the best options:

•The iPath Dow Jones-AIG Softs Total Return Sub-Index ETN (NYSE: JJS) is based on the soft commodity sub-index. It allocates nearly a third of its assets under management (AUM) to cotton, and also invests in sugar and coffee. This ETN has traded as low as $41.22 to a high of $59.82, and closed yesterday (Thursday) at $58.35. Like most of these commodity ETFs or ETNs, the total assets haven't yet reached a substantial size, meaning liquidity risks exist.
•The iPath Dow Jones-AIG Cotton Total Return Sub-Index ETN (NYSE: BAL) is based on the total return sub-index for cotton. It is based on the return of a single futures contract in cotton. The ETN is extremely small, but gives investors direct exposure to the expected changes in price. At yesterday's closing price of $47.70, this ETN is trading near the top of its 52-week range of $31.50 to $50.49.
If you are an investor with access to the futures market, you do get a more-direct exposure to cotton, albeit with greater risk. If you are interested in reviewing cotton futures contracts or their charts, check out FutureSource.

If I was buying futures contracts, I would be looking at the May 2011 contracts and, once the market becomes more liquid, at the May 2012 contracts.

[Editor's Note: If there's one thing top global investors understand, it's that you have to "follow the money" to reap the benefits of the best profit opportunities that are available at any one time. Money flows point out the next profit opportunities. Sometimes that means "following the money" from one sector to the next. Other times that means moving from one geographic market to another.

To make those moves successfully, investors need a compass or, better yet, a guide. And successful investors will tell you, one of the best guides out there is The Money Map Report.

This monthly advisory service - an affiliate of Money Morning - employs many of the same experts whose columns you read here each day. The difference is that The Money Map Report is straight investment analysis. Our writers use proprietary money-flow indicators to identify and isolate the most timely profit opportunities you'll find anywhere. For more information about The Money Map Report, please click here.]

Source : http://moneymorning.com/2010/09/24/investing-in-cotton/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History