From the November 01, 2010 issue of Futures Magazine • Subscribe!

Cotton makes historic highs

Already impressive growth in cotton has gone into hyper drive since the middle of July, taking out a 15-year high in October with price raise about $1 per lb. for the first time since 1995.

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Shawn Hackett, president of Hackett Financial Advisors, says the move since mid-July has been driven by a sudden shortage in the world’s supply of cotton as Pakistan was forced to become an importer rather than an exporter of cotton because of historical floods there that decimated the crop. "When you have a major exporter become an importer, it sets the market upside down." Hackett expects this market to reverse course shortly and cites any number of factors being the catalyst for the move. "A major dollar rally [could cause] that, a major stock market move, currency move, pretty much anything could set this thing off into a feeding frenzy going back down," he says. He expects price to move slightly higher than $1.17 before reversing, but sees support at the 80-0.85¢ range.

Tom Mikulski, senior market strategist at Lind Waldock, points to a slew of other factors having driven the move including drastically increased demand out of China, the weak dollar and competition for acreage with grains. Looking forward, he says factors such as the election, potential quantitative easing and the value of the dollar will probably determine which way cotton will go with potential for either up or down. The biggest factor is the state of the dollar and the decisions spec funds will make. "If the dollar starts to rally, you may see a lot more funds pull the plug and if they pull the plug there could be a major washout," he says. Mikulski sees more buoyancy in cotton and expects prices to be in the $1.00-$1.15 range through early November but warns that if the dollar spikes, cotton could drop into the 90-95¢ range.

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