Summary
Cotton prices have rallied strongly since we invested in the iPath Dow Jones-UBS Cotton Total Return Sub-Index ETN in February.
Cotton demand is still weak and consumption forecasts are reasonable stagnant.
We believe cotton prices could increase in the future, but are likely to go sideways at best in the next few months.
Because of this we are locking in our gains and turning our attention elsewhere.
It has been almost four months now, but we have decided to call time on our investment in the iPath Dow Jones-UBS Cotton Total Return Sub-Index ETN (NYSEARCA:BAL) which does a great job of tracking the price of cotton. We feel cotton prices may now have peaked for the time being and have decided to lock in the 10.5 percent gain we have made.
Sourced from Finviz.com
When we made our cotton investment in February, cotton prices were at their lowest levels in over a year, as the chart above demonstrates. Since then prices have rallied quite strongly. So strongly in fact, we feel that the price may have peaked and could drop back soon. In the long-term we do think there is a chance that cotton prices could continue to climb higher. But what we see in the cotton industry at the moment paints a picture of small gains in the year ahead, making now a good time to look elsewhere in our view.
What's the latest on cotton?
Cotton is still facing a deficit with demand outstripping supply. In fact, next season stock levels are forecast to fall to their lowest level in three years at 19.4 million tonnes. The International Cotton Advisory Committee sees world cotton stocks falling by 5 percent in 2016-17, following on from an 8 percent drop in the previous season. But this deficit isn't being caused by excessive demand levels, it's being caused by low production levels. Demand for cotton is largely stagnant at present and is expected to remain that way for some time to come.
