Home > Commodities and Rates > Cotton: Bubblicious

Cotton: Bubblicious

November 1, 2010 Leave a comment Go to comments

Since July,  Cotton futures have gone from bull market to absurd.  In a little over 3 months the fluffy white stuff has risen an astounding 79%, largely spurred by frenetic buying on behalf of the mills, speculators, and funds.  The fundamental catalyst has been strong demand in China, the No. 1 producer has been squeezed by high demand and declining production. Recently, weather concerns in both China and the U.S. have added more reason for concern.

Over recent years we have learned, with the dramatic increase in hedge fund assets — speculative fuel — any market which catches fire for any reason, justified or not, will have hot money chasing prices higher; creating a strong disconnect between fundamentals and price.

I am no expert in cotton, but it has become pretty clear we are amidst another speculative 'ramp up' that will end as they all do — bust.  I wouldn't run out and get in the way of this train just yet, but the time for this trend to show signs of reversing will come sooner rather than later.


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