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Trackinsight: Cotton ETFs warm up on shifting weather and rising costs

03/24/2022 | 11:15am EDT

Cotton futures rise to its highest level since 2011.

Cotton futures reached their highest level since June 2011 at $130/lbs amid expectations of lower supplies as drought ravages US planting areas and demand for the fluffy fiber gains traction.

Overall, rainfall has been very low since early January in the northwest part of Texas, which accounts for about 40% of all US cotton production (USDA ERS). Rising costs of pesticides did not help ease prices either, with analysts expecting lower growth in US acreage.

Meanwhile, the demand is rising especially from China. USDA’s weekly export sales data showed that cotton shipments reached 96% of the USDA’s marketing year estimates to 371,400 bales, which is also 5% more than that of the previous week and 34% higher from the prior 4-week average. In its March 10th report, USDA estimated 2021/22 global cotton consumption to be 111,000 bales higher compared to last month’s projections while it sees world ending stocks 1.7 million bales lower due to smaller global production, particularly from India.

American investors: How to invest in Cotton ETFs?
American investors can get a piece of the action through iPath Series B Bloomberg Cotton Subindex Total Return ETN (BAL). The 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, meaning that they would 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. Year-to-date, BAL is up by +18%.
European investors: How to invest in Cotton ETFs?

European investors can exposure to cotton through WisdomTree Cotton (COTN).

COTN seeks to track the Bloomberg Cotton Subindex fund invests in Cotton Futures. The fund has a total expense ratio of 0.49% and trades on the Deutsche Börse Xetra (OD7E, EUR), the London Stock Exchange (COTN, USD), and Borsa Italiana (COTN, EUR).

This year, COTN's share price (LSE) has increased by +19.5%.

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© 2022
Stocks mentioned in the article
ChangeLast1st jan.
DEUTSCHE BÖRSE AG 0.70% 157.3 Delayed Quote.6.93%
LONDON STOCK EXCHANGE PLC 1.82% 7600 Delayed Quote.9.67%
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