Market Overview

Amid Corn's Surge, Cotton's Plunge Goes Nearly Unnoticed

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ETF Deathwatch for November 2011: Count Surges to Record High
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Cotton Futures Lower for Eighth Day in a Row
Cotton Futures Flat

Even casual participants in the financial markets know that it has been nearly impossible to go a single trading day over the past several weeks without hearing about corn. Google Trends shows search volume for the word "corn" is spiking.

The surge in Internet searches on the agricultural commodity corresponds with a breathtaking jump in corn futures. Along those lines, it is safe to say that investors who had not heard of the Teucrium Corn Fund (NYSE: CORN) two or three weeks ago, at the very least, now know that CORN exists.

While the vegetable that is an ingredient in scores of products soars, another commodity's futures have suffered -- cotton. The fabric of our lives is being held hostage by the worst scenario for any commodity - slack demand and rising stockpiles.

In fairness, it should be noted the iPath DJ-UBS Cotton TR Sub-Index ETN (NYSE: BAL) is higher over the past month. The less popular iPath Pure Beta Cotton ETN (NYSE: CTNN) has absorbed a manageable loss of half a percent over the same time.

The fact that cotton futures could rally because of an oversold condition cannot be ignored. That is a potential near-term catalyst that does not solve the longer range problem of a slowing global economy.

The economy is fragile here in the U.S. and slowing in China. The Eurozone is a well-documented disaster. These factors help explain why cotton futures have plunged nearly 30 percent in the past year. BAL and CTNN's declines have been only marginally better at 21 percent and 25 percent, respectively.

BAL and CTNN could see some relief if farmers move away from cotton to plant more corn, soybeans, and wheat. In addition to CORN, the Teucrium Soybean Fund (NYSE: SOYB) and the Teucrium Wheat Fund (NYSE: WEAT) have set torrid paces in the past month. If farmers shift to those commodities, cotton supplies would decrease, but that would only solve one part of the problem for BAL and CTNN.

The other issue is pensive global consumers. Prudent personal finance dictates that one who is worried about his or her employment situation and how to pay the next car or electric bill should not be devoting after-tax income to sprees at the local Abercrombie & Fitch (NYSE: ANF).

Ultimately, in order for BAL to really bounce, worldwide consumers need to start making new wardrobe additions. Cotton futures are notoriously volatile and that volatility has trickled down to BAL, which is to say that if there is a good reason for this ETN to move higher, it will. Highlighting BAL's penchant for volatility is the fact that 16 months ago, the ETN traded over $110. It now resides below $48.

The bear case is without the benefit of more quantitative easing and with the specter of a slowing global economy, BAL likely has more downside ahead of it.

Posted-In: Long Ideas News Short Ideas Specialty ETFs Futures Technicals Commodities Global Best of Benzinga

 

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