Why the Fundamentals Support the Cotton ETN

| About: iPath Dow (BAL)

Cotton has become one hot commodity. Right alongside food and gas, the price for this fiber keeps going higher. The related ETN, iPath DJ AIG Cotton (NYSEARCA:BAL), has rewarded its investors in kind.

Fred Mason for Benzinga reports that cotton prices are at all-time record highs and rising. Already, 80% of the coming harvest from Australia has been sold, which represents as much as a 30% jump from past sales rate. Flooding in Queensland sparked a rush for buyers to get whatever cotton they could.

The ETF Professor for Benzinga reports that other signs the cotton ETN is ripe for the pickin’ include:

  • The fundamentals are still there; the recent correction was really because of a broader market sell-off.
  • Various sources recently pointed out that China’s domestic cotton production (estimated at 30 million bales) will not be able to meet expected consumption (estimated at 47 million bales).
  • Rising cotton prices are affecting cotton clothing prices and retailers are starting to hike up what they charge after holding off as long as they possibly could.

Denise Allabaugh for The Times Tribune reports that the price of cotton has increased more than 171% year-over-year, to a 50-year high in February.

Tisha Guerrero contributed to this article.