subject: Record High Cotton Prices Can Mean Fortunes [print this page] Record High Cotton Prices Can Mean Fortunes
Cotton prices are at all-time record high levels. As of this writing, December Cotton is at 142.23 cents per pound. Historically, cotton has averaged 40-50 cents per pound. We are at a record 140 year high in cotton prices. This is not inflation adjusted though. Records began back in 1870 with the creation of the New York Cotton Exchange.
The record high prices are mostly due to rising global demand from spinning mills, and global stock piles that are shrinking. Demand from Chinese cotton mills are showing no signs of slowing down at this time. There is an imbalance that most likely will not be solved anytime soon.
Talk about a bullish situation. You have global demand easily outstripping worldwide supply. Crops in China, the world's largest cotton producer, and Pakistan, the world's fourth largest producer, were hit by major floods. U.S. weather has been unseasonable, and is also causing some problems in that respect. The U.S. is the world's third largest producer of cotton, and the world's largest exporter.
Obviously, garment producers will be passing on the rising costs to consumers. Look for price increases in cotton-based items. This could well happen, sometime in the first quarter of next year. This is not good with the current economic condition, and the job situation.
The best commodity traders have already made fortunes from the tremendous rise in cotton prices. In 2009, cotton was as low as 40 cents per pound. Right now, cotton is over 140 cents per pound. When you trade a cotton futures contract, each one cent move is worth $500.00. As an example, if you acquired one futures contract when cotton was at 60 cents, and the price of cotton went up to 70 cents, you would have a profit of $5000.00. This is with only one futures contract.
Commodity bubbles, such as the current one in cotton, tend to go further, and last longer than most people would expect. Cotton could go up to 200 cents per pound. There is no way of knowing how high it could go. One thing is certain. Eventually, cotton prices will reverse, and start coming down. Commodity prices tend to go down faster than they go up. Just how can you accurately determine when cotton prices reverse, and change its trend? This is achieved by implementing proper price and volume analysis. Simply put, the charts tells all.
Fortunes will be made when the price of cotton falls, just as fortunes were made by the incredible increase in cotton prices. Put options will be an excellent way to acquire great wealth, as the price of cotton ultimately drops in a dramatic way. It will take expert price and volume analysis, coupled with superb timing, but it certainly can, and will be done.
