CONTANGO WATCH: Cotton's current roll cost has widened by more than a staggering 10 percent this week as contango in the one-year forward curve steepens by a much less impressive 1.30 percent.
While the biggest news in cotton for the last few weeks has been the record purchases of cotton by the Chinese government in a move to protect its domestic farmers as reported by Bloomberg, this week attention has turned to the International Cotton Association. According to a brief from Feb. 14, the group is planning to have an industry focus group meet next Monday to discuss proposals for a new world contract.
Bloomberg further stated that "Price volatility since 2008 has spurred 'substantial' contract disputes in the industry and highlighted weaknesses in current trading practices," which will of course will be key areas of concern during the upcoming meeting.
The Financial Times has speculated that the talks may lead to the U.S. no longer being the supreme arbiter of cotton pricing. One of the main points up for discussion will be whether futures prices should be set by the place of origin or in its destination—a point the ICA voted on 8-7, in favor of origin pricing, in a Jan. 28 meeting that has led to Monday's meeting.
Investors should expect the market to be volatile in the coming week ahead of the meeting and possible announcements of a new world contract on futures pricing.
ROLL COSTS: It costs investors 14.62 percent annualized to roll front-month cotton contracts, up from a net of 3.24 percent.
BOTTOM LINE: Contango
Has oil moved into backwardation yet? What does corn's roll yield look like? How do you know when it's time to buy—or sell?
Each week, we investigate the futures curves of the most important commodities in the U.S., helping investors better understand the market and seize buy-and-sell opportunities as soon as they arise. For an easy-to-understand explanation of contango, backwardation and roll yields, please click here to go to our Hard Assets University.
To see current contango curve and front-month roll costs (March 13 - April 13) for each of our selected commodities, please select a sector or commodity below (or read the whole report ):
Data as of close on February 15, 2013
Data courtesy IndexUniverse.com
|Current Roll||Previous Week's Roll||Past Year Average Roll||Historical 02/15 5YR Annualized Roll|
|HH Natural Gas||27.90%||26.78%||3.16%||38.25%|
|Soft Commodities||Coffee C||15.11%||14.17%||1.82%||10.25%|
Smart beta isn’t smarter than cap weighting, but it is different, and that’s great for investors.
Trial by fire is one way to discover why ETF transparency matters.
Most people now realize leveraged ETFs can hurt you, but how, then, to use them?
What would a shift out of a mutual fund and into an ETF look like up close?