Investors aren’t limited to only investing in the S&P 500 and the Dow Jones Industrial Average. Every week we share the market trends we are following. We are interested in whether the trends in those markets are continuing or if they are experiencing a temporary or complete reversal.
When we identify trends, we are only concerned about the price data and what it says about any given market. We don’t need to know why a trend has formed to invest, but our human nature wants to understand what is driving them. Each week we try to offer some perspective on what we think the most substantial moves are and what critical drivers are behind them. Here we look at what is going in our globally diversified, non-correlated Crystal Bay Ubitrend strategy.
Last week’s continuing trends:
- Singaporean Equities
- Spanish Equities
- UK Equities
- Rubber
- Russian Ruble
Last week’s reversing trends:
- Wheat
- Maize
- Sugar
- US Equities
- Australian Equities
What we are taking note of:
Most investors, when asked to name a few commodities, would immediately mention oil and gold. Some may come up with less prominent examples like soybeans or pork bellies, maybe copper. Few would think of cotton. Yet cotton is all around us. You’re wearing it right now. The Covid mask on your face is probably made of cotton. We cannot imagine life without cotton. Only in our nightmares, we all wear polyester.
The average human on earth uses almost eight pounds of cotton per year. More than 2.5% of all arable land is devoted to cotton. Despite many attempts, science has not come up with a satisfactory substitute for it. We will depend on cotton for decades, maybe centuries to come.
The United States is the world’s biggest exporter of cotton. US farmers and textile manufacturers have used cotton futures to manage their price risk since 1870 when the New York Cotton Exchange opened for business. Even though other commodities have become more important, cotton futures remain actively traded and used.
Among cotton consumers, China is the most important one. When the Covid pandemic’s news first came out of China in February and early March, the market assumed that cotton would be negatively affected by weak Chinese demand, and prices collapsed by 30% within weeks. Yet, to the world’s surprise, China handled the pandemic better than all the other big economies, and Chinese demand quickly came back.
Weather conditions in the US were not favorable to cotton this year. Dry weather in Texas through most of the summer was followed by early frosts and snowfall in October. The US harvest is now forecast to reach only 17 million bales in 2020, compared to about 20 million bales in an average year, and the lowest level since 2015.
Cotton prices have fully recovered from their bottom in early April, and they have been zooming upwards in October. The combination of strong Chinese demand and weak US supply has been a boon. Cotton will remain a commodity to watch for gauging the strength of Asian consumers.
Cotton
