Cotton makes up around half of the fiber used in the production of our clothes and other fabrics. 20 million tons is harvested and traded each year; for comparison, that is around 20 T-shirts for each human being annually. Due to its demand, cotton has a large and fairly stable presence on the stock market, making it a favorite for investors. You can buy or sell an interest in cotton through a variety of investment vehicles.
1. Cotton stocks
Stocks are a common option for investors, taking back the control you lose when investing in ETFs while also remaining less risky than futures. While stocks run a comfortable middle ground between the other options, they are still vulnerable to market movements and should be approached with a bit of market knowledge. Cotton is a massive industry and will continue to be as long as we choose to wear clothes. There are plenty of brokerages offering a selection of company stocks for you to choose from, and with its prevalence, cotton may be a good place to start. Here are some of the biggest names in the industry:
While futures are certainly more dangerous, stocks still have their risks. Market fluctuations are unavoidable and can have a real impact on your investment.
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2. Cotton ETFs
Instead of investing in the stock of one or two companies, ETFs give you the option of placing your money with a bundle of assets. ETFs are a simpler way of entering the market. While they work much like regular stocks, ETFs are protected from market movements through diversification — they don’t rely on the performance of one company. If you are still learning the basics of investing, then ETFs are a great introduction. Cotton is a massive industry that’s been around for a long time, so it may be a good place to start. Here are a few options to consider:
Cotton price ETF
iPath Series B Bloomberg Cotton Subindex Total Return ETN (BAL), which tracks the price of cotton
Overall agriculture ETFs
Elements Agriculture Total Return (RJA), which tracks an index of agricultural commodities where cotton is a major component
Invesco DB Agriculture Fund (DBA), which tracks an index of agricultural commodities where cotton is a minor component
Pros
By bundling stocks from different companies together, ETFs give you access to a larger part of the industry.
ETFs are considered by some to be the safest choice for investors.
Cons
Because you are investing in a collection of stocks, you lose some of the control you might have had with a single company’s stock.
Who is most likely to be researching how to invest in cotton?
Finder data suggests that men aged 35-44 are most likely to be researching this topic.
Response
Male (%)
Female (%)
65+
5.26%
2.28%
55-64
11.93%
4.12%
45-54
14.12%
3.51%
35-44
17.11%
5.88%
25-34
16.58%
5.09%
18-24
10.61%
3.51%
Source: Finder sample of 1,140 visitors using demographics data from Google Analytics
3. Cotton futures
Futures are one of the riskier methods of investing, and while they can be very profitable, they can just as easily lose you a lot of money. Futures trading is more commonly the domain of cotton farmers or manufacturers, though investors and speculators can also buy and sell futures contracts through select brokerage accounts. Only a few mainstream brokerage accounts allow futures trading alongside stocks, ETFs and options. By investing in futures, you are agreeing to buy a commodity at an agreed price to receive directly at a later date. If the price you agree to buy at ends up being lower than the price of the commodity when you receive it, you will have made a solid return; however, the market may go against you and you could end up paying more than necessary. Futures operate on both buyer knowledge and luck. If you are new to investing, it is recommended you learn the ropes before considering futures as an option.
Pros
Investing in futures gives you complete ownership over a commodity.
If you make the right investment, futures can bring you solid returns.
Cons
There is a real element of gambling present in futures, and you can end up paying dearly for a mistake.
Futures expire if they aren’t used within a certain period of time, becoming worthless.
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How much is cotton worth now?
Reasons to invest
Cotton is a staple commodity that is almost always in demand.
Demand in fast-developing countries like China and India is likely to outpace their ability to produce cotton.
Consequences of climate change could disrupt the production of cotton in various places around the world, stifling its supply and causing higher prices.
Is cotton a safe investment?
Stockpiles: Countries hoarding cotton can influence prices if they decide to withhold their stockpiles during a shortage or put them on the market when there is no domestic demand.
Subsidies: Policies to keep prices low and supply high can be altered over time, influencing prices both positively and negatively.
Substitutes: Synthetic materials such as polyester can undercut the price of cotton and weaken its market share. Large but struggling economies can drastically influence prices if they switch to a cheaper material.
Environment: Weather shifts will influence pollination, growth and yield, subsequently impacting supply.
External influences: Other industries can have an influence on cotton prices. If oil becomes more expensive, the harvesting and production costs for cotton can rise as a result. It is a good idea to keep an eye on relevant industries.
Bottom line
Cotton is an in-demand staple you can invest in by purchasing stocks, futures and ETFs. But keep an eye out for shifts in competing industries and commodities that could impact the market. Explore your investing options across trading platforms and commodities before you make a decision.
Frequently asked questions
Over the past 20 years, cotton prices have ranged from a 2001 low of about $0.30 per pound to a 2011 high near $2.00, with prices bouncing between $0.50 and $0.80 in the latter years of the 2010s.
The biggest producers of cotton are India, China and the USA. Cotton requires a warm climate and a good supply of rain to grow properly. It is harvested and refined for its different uses.
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