Commodity Trading Trends: Cotton Futures Dragging

Includes: BAL, MON
by: CommodityHQ

By Jared Cummans

The final month of the quarter saw a fair amount of volatility as far as commodities are concerned. With a number of global factors combining, performances were spread across the board. Cotton, in particular, had a strong March, as futures prices gained as much as 3.8% over the four week period. But as April and Q2 have begun, cotton has been struck with selling pressures. April’s losses have yielded to roughly 4%, erasing nearly all of the gains that copper futures had enjoyed in the previous month [see also Dividend Special: Top Companies In Every Major Commodity Sector].

Last month’s gains were largely spurned by a government mandate that halted exports form the U.S.. “The US department of agriculture (USDA), in its latest report, said: ‘No new additional export registrations are being approved and this report assumes that existing policy parameters will be in place through September 30, 2012, the end of the Indian cotton marketing year.’” writes Ankur Singh. The intervention was needed to keep cotton prices steady, as production has been somewhat spotty around the globe. Currently, there are three million bales of cotton up for review for export, as they were already slated to be exported when the ban was announced; any news regarding this lump sum could have a major impact on cotton futures [see also Invest Like Jim Rogers With These Three Agriculture Stocks].

How To Play

For investors who have a strong opinion on where cotton is headed or for traders looking to make a quick return, there are a wealth of options available. Perhaps the most direct method comes from the May TT Cotton futures contract offered on the NYMEX. The May contract is currently the most heavily-traded future and will offer the best liquidity. There is also a viable ETN option in the Dow Jones-UBS Cotton Total Return Sub-Index ETN (NYSEARCA:BAL), which trades hands over 45,000 times each day. Investors can also take a more indirect approach with stocks like Monsanto (NYSE:MON) whose profits do not depend solely on cotton, but certainly rely a great deal on this soft commodity [see also 50 Ways To Invest In Agriculture].

Disclosure: No positions at time of writing.