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Cotton ETN Looks for More in Soft Commodity Rally


This has been an excellent year for agricultural and soft commodities, particularly those beginning with the letter “C.”

Take the case of the iPath Dow Jones-UBS Coffee Total Return Sub-Index (JO) . JO is the top-performing non-leveraged exchange traded product this year, having nearly doubled. The Teucrium Corn Fund (CORN) has impressed as well with 2014 gain of 13.5%. [Cozy up to Corn]

Another “C” commodity that has been solid this year has been cotton. The iPath Dow Jones-UBS Cotton Total Return Sub-Index (BAL) is up 7.6% and more upside could be on the way.

“I think Cotton is worth taking a look at. This nice long base we’ve seen Cotton build over the last few years could be the catalyst to take this much higher. Some of its colleagues like Coffee, for example, have been on fire. I think this one can join the party,” notes Eagle Bay Capital President J.C. Parets.

While commodities such as coffee and sugar have gotten a lift this year from poor weather in Brazil, cotton futures and BAL could get a boost from domestic weather conditions. That is important because the U.S. is the world’s largest cotton exporter.

“Crop prospects are worsening in Texas, the top grower, as inventories before this year’s harvest head for a 35 percent plunge in the U.S,” reports Marvin G. Perez for Bloomberg.

Last month, the USDA lowered its estimates for this year’s cotton crop, but some futures traders foresee additional near-term reductions. Net long positions in cotton futures have jumped in four of the past five weeks and have surged 46% in 2014, according to Bloomberg.

Still, investors would do well to remember BAL imitating JO’s move is not likely to happen. [Technical Take on Coffee ETNs]

“Price target-wise I don’t think we can just assume that it (cotton) will do what Coffee just did: up over 100% in a few months. But I do think there’s plenty of upside. The fact that this space is and has been the best place to be in the entire world this year, we have the wind to our backs,” said Parets.

iPath Dow Jones-UBS Cotton Total Return Sub-Index



ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.