Thoughts on this idea from Pequot Capital’s Byron Wien? “Cotton is going to be the commodity of choice because the world’s standard of living is increasing and the places where it’s increasing fastest are warm and they don’t wear wool, they wear cotton. Cotton is something nobody wants to grow. They want to grow corn instead. So, while the demand for cotton is increasing, the acreage devoted to it is decreasing and that’s all you have to know.” Buy cotton futures?
Seriously? You’re wondering if an investment recommendation that ends with the phrase “and that’s all you have to know” should be followed? FYI, I have no idea about the commodities markets (that’s probably an overstatement, but compared to people who actually work in them my knowledge is limited), but if that research report was the only thing that I’d ever read about cotton I’d short the bejesus out of it.
So before you jump down, shake around, buy 50,000 lbs/contract of cotton you should probably not believe someone who says “…that’s all you have to know”. Growing corn is really chic right now because everyone thinks we’re going to be driving our cars on hooch. That’s dumb and we won’t. Cotton can be grown in probably 1/2 the world’s land. It requires not particularly much expertise to grow and will grow anywhere with a half-way decent supply of water and about 6 months of frost-free weather. It takes very little lead time to grow (tear down trees, plant the seeds, and you’ve got the look and feel of cotton in a few months). That means there is serious supply elasticity for cotton. Cotton can’t get all that expensive because it’s simple to grow and there’s lots of space to grow it. And I would bet big that Byron Wien has never set foot on a cotton farm or any other farm anywhere.
Let’s calm down for a minute!!! Seriously! I just read it online and thought I would post the idea for your thoughts. Who said I was pouring money into it b/c he said “thats all you have to know”? I thought it was an interesting idea that warranted a further look/discussion
Trading cotton is tough. I’ve tried. I can’t. Oh well. Byron Wien hasn’t even tried.
I like anything grain based in ag (long term, I am by NO means a commodity day trade expert), I mean if China starts eating more meat which we all know they will with more $$$, and they have begun to, meat is more grain intensive than just eating bread. Hence increased demand for grains. As long as idiots in congress keep the pork flowing for the ethanol “industry” which distorts the normal crop growing patterns in favour of corn (and also the food market, less food, more fuel…dumb dumb dumb) it should further help grains. It’s not just the global economy which is fueling grain prices, there is the whole impact of the water droughts we are seeing in Australia and we are just starting to see in America with the Great Plains drying due to a number of factors, none of which again I am an expert on. If you really believe in global warming, there is probably no better play than food (maybe gold). As well, if you, like me, believe the fed is fueling long term inflation with these rate cuts at a time of growing inflation worldwide, once again food is a pretty good hedge I have to think. …and that’s all you have to know
drs Wrote: ------------------------------------------------------- > Let’s calm down for a minute!!! Seriously! > > I just read it online and thought I would post the > idea for your thoughts. Who said I was pouring > money into it b/c he said “thats all you have to > know”? I thought it was an interesting idea that > warranted a further look/discussion It’s an interesting theory I don’t doubt, but I think may be onto something with his rebuttal. Personally I’d prefer if some of the young girls in Brazil worse less cotton as they grow wealthier~~~
I’m not sure that this view suggests commodity futures, even if you agree with this. With a future, you have to be right by the time the future expires (or roll it over and essentially pay interest until you are). Might make more sense to look at cotton producers and get your exposite through their equity.
Except Byron Wien isn’t suggesting buying domestic cotton but international cotton. That puts you into buying cotton producers in India, China, and Ukraine (Uzbekhistan? Some place over there where they planted cotton over the missiles that used to be aimed at us). That’s tons of political risk on a long-range bogus commodity play.