Cotton ETN: Not Getting Washed Out

Aug.19.10 | About: iPath Dow (BAL)

Everyone wants cotton, apparently. That’s got those who grow it anticipating higher prices, tighter supplies and – for investors – a shortage could weave better returns for the cotton exchange traded note (ETN), too.

Cotton may get stretched to its limit in the near future: as demand is high, inventories are tight and people in emerging markets want it for everything from sheets to clothing.

As a result, iPath Dow Jones-AIG Cotton Total Return Sub-Index ETN (NYSEArca: BAL) is up 9.7% year-to-date, and up 14% in the last month.

  • The world’s largest cotton consumer, China, has seen demand for the commodity surge nearly 24% and demand growth in India is similar, says Kevin Grewal for Daily Markets.
  • Across all emerging markets, a growing middle class is buying up shirts, sheets and anything else calling for the material, straining supplies.
  • The U.S. Department of Agriculture says that cotton production isn’t going to keep up with demand this year. Inventories are already at their lowest level in 14 years.
  • Jennifer A. Johnson for Bloomberg reports that U.S. cotton exports are off to their fastest start since 1993, potentially delivering a nice boost to the U.S. economy.
  • Cotton for December delivery on ICE Futures U.S. in New York reached 85.71 cents on Aug. 13, the highest level since April 28. The 31% gain in the 12 months through Aug. 13 was the third-biggest in the Reuters/Jefferies CRB Index of 19 commodities.

Tisha Guerrero contributed to this article.