Cotton futures hit their highest level since June 2011, $130/lb, amid expectations of lower supply as drought ravages US planting areas and demand for the fluffy fiber gains traction.
Overall, rainfall has been very low since early January in northwestern Texas, which accounts for about 40% of US cotton production (USDA ERS). Rising pesticide costs also didn’t help push prices down, with analysts predicting weaker growth in US acreage.
Meanwhile, demand is increasing, especially from China. USDA’s weekly export sales data shows that cotton shipments reached 96% of USDA’s estimate for the marketing year of 371,400 bales, which is also 5% above the previous week and 34% more than the average of the previous four weeks. In its March 10 report, the USDA estimates that 2021/22 world cotton consumption will be 111,000 bales higher than last month’s projections, while it sees world ending stocks lower by 1. 7 million bales due to lower global production, particularly in India.
US investors can get a share of the stock through the ETN iPath Series B Bloomberg Cotton Subindex Total Return (BAL). This exchange-traded note seeks to track the Bloomberg Cotton Subindex Total Return and provides exposure to cotton futures. Investors should keep in mind that BAL is an ETN, which means they will be exposed to the credit risk of the issuing institution. BAL has a total expense ratio of 0.45% and trades primarily on the NYSE Arca. Since the beginning of the year, BAL is up +18%.
European investors can gain exposure to cotton through WisdomTree Cotton (COTN).
COTN seeks to follow the Bloomberg Cotton Subindex fund invests in cotton futures. The fund has a total expense ratio of 0.49% and trades on Deutsche Brse Xetra (OD7E, EUR), London Stock Exchange (COTN, USD) and Borsa Italiana (COTN, EUR).
This year, the COTN (LSE) share price increased by +19.5%.
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