# UBS: Cotton may be among the best commodity investments



## BREND (6 July 2007)

Sugar, corn, wheat and cotton may be among the best commodity investments in the next one to three years driven by biofuel demand and rising incomes in China and India, according to UBS AG, the world's largest money manager. 

``Investors can expect to see a 6 to 10 percent plus return per year on those investments,'' Stuart Fox, UBS's head of commodities in Asia Pacific, said by phone from Hong Kong. His energy and commodities traders and sales team in Asia has more than tripled to 16 people in the past 12 months. 

UBS, Credit Suisse Group and Lehman Brothers Holdings Inc.are among banks expanding into commodities after prices rose to records. Cereal, oil seed and sugar prices will stay close toc urrent levels over the next decade because of surging demand from biofuel producers, the Organization for Economic Co-operation and a United Nations' agency said on July 4. 

'' Tim Rocks, Asian equities analyst at Macquarie Securities Ltd. The general outlook for agricultural commodities is very positive, said by phone from Hong Kong yesterday.``Vegetable oil prices are going to go a lot higher. There's no shortage of demand.'' 

Agricultural prices may double in two years on rising populations in Asia and demand for alternative fuels, Global Commodities Ltd. said last month. Ethanol production from cornis forecast to double between 2006 and 2016 in the U.S., theParis-based OECD and the Food and Agriculture Organization said.The output of biodiesel made from oilseeds in Europe and ethanolfrom sugar in Brazil will also soar, they said. 

`Under-Invested' 

``We are very bullish on the agricultural complex mediumterm and we think that is one area people are under-invested and there is a lot of upside,'' UBS's Fox said in a July 4 interview.``Real demand from China and India is not going away.'' 

Investors held $110 billion in commodity products in thef irst quarter and investments may rise 20 percent annually overthe next three years, according to American International GroupInc. Jim Rogers, chairman of New York-based Beeland InterestsInc., said this month the bull market in commodities will lastat least a decade, and favored agricultural commodities. 

``For institutional investors that are looking at one to three years horizon, we think corn, wheat, sugar and cotton are good buys over that time frame,'' Fox said. ``They are a great inflation hedge'' and ``very few investors have exposure tothese markets,'' he said. 

The price of wheat has gained by 55 percent in the past 12 months as drought cut output from Australia to Ukraine andinventories fell. Corn has rallied 40 percent, driven by demandfor ethanol. This compares with a 9 percent decline in theReuters/Jefferies CRB Index of 19 commodities in the same period. 

`Total Disaster' 

Sugar, the worst performing commodity in the past 12 monthsin the UBS Bloomberg CMCI Index, also offers a good investmentopportunity in the medium term as about half of the Braziliansugar cane crop is going into ethanol making this year, Fox said.Brazil is the world's biggest grower of sugar cane. 

Sugar-cane output in Brazil will rise to a record 528million metric tons in the current harvest, the Agriculture Ministry said in May. The South American country is the world'sbiggest maker of sugar and cane-based ethanol. 

Cotton futures traded in New York have gained 30 percent since the end of April as Chinese imports are expected to rise to 3.8 million tons from 2.5 million tons, according to theInternational Cotton Advisory Committee's report July 2. 

``Cotton has lost acreage to grains in the U.S. and high oil prices have boosted the production cost of synthetic fibers,'' John Reeve, associate director for agriculturalcommodities at UBS in Singapore, said in an interview June 20. Drought in Australia and lack of irrigation water will reduce output from the world's fifth-largest cotton exporter, he said. 

Demand for cotton is strong and supply has been disrupted by droughts, said Macquarie's Rocks. ``The fundamentals are supportive. That should go up,'' he said. Still, Rocks doesn't favor sugar. ``Sugar is a total disaster. You are never going to get the sugar price sustainably high,'' he said. 

When I invest in a commodity, I like choose those commodity that is high in demand, and facing supply disruption, over time price will go up. This is happening to Lead and Cotton now. 

For more information on cotton:
http://basemetal-trading.blogspot.com/2007/07/cotton-rises-for-4th-session-on-china.html

http://basemetal-trading.blogspot.com/2007/07/next-target-cotton-futures.html

http://basemetal-trading.blogspot.com/2007/07/bought-cotton-futures.html

Vested in cotton futures


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## wayneL (6 July 2007)

Cotton & Sugar Charts of various time frames

http://tradingta.netfirms.com/cotton_charts.htm

http://tradingta.netfirms.com/sugar_charts.htm


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## wayneL (6 July 2007)

Wanna see what inflation looks like?

Wait till the long only commodity funds and ETCs get their teeth into these. Food commodities will go through the roof.

This will be great for traders, but very bad for economies. The Mexicans have already been rioting over high corn prices


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## CanOz (6 July 2007)

wayneL said:


> Wanna see what inflation looks like?
> 
> Wait till the long only commodity funds and ETCs get their teeth into these. Food commodities will go through the roof.
> 
> This will be great for traders, but very bad for economies. The Mexicans have already been rioting over high corn prices




Imagine the inflation.

Looks like we're starting to enter the final phase of the economic cycle peak where commodities will be best...

Interst rate hikes
Capacity constraints
High and Rising inflation

Cheers,


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## BREND (6 July 2007)

CanOz said:


> Imagine the inflation.
> 
> Looks like we're starting to enter the final phase of the economic cycle peak where commodities will be best...
> 
> ...




We are in the commodity bull run now, either u ride on it or miss the opportunity. I choose to ride on it, took profit on copper futures last night, and bought more cotton futures today.


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## CanOz (6 July 2007)

BREND said:


> We are in the commodity bull run now, either u ride on it or miss the opportunity. I choose to ride on it, took profit on copper futures last night, and bought more cotton futures today.




Either you gamble your money on it, or commit enough capital to it so you can effectively manage risk, and preserve your capital long enough to take advantage of the ones that run. With the volitility that the futures market sees, to me you would have to have at least 25-50k in capital. 

At the moment this is well above me. So i guess i miss out. I'm not willing to do this any other way.

Good luck to you.

Cheers,


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## wayneL (6 July 2007)

BREND said:


> We are in the commodity bull run now, either u ride on it or miss the opportunity. I choose to ride on it, took profit on copper futures last night, and bought more cotton futures today.



Hindsite trades are not encouraged at ASF...call it live dude or not at all.


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## BREND (6 July 2007)

CanOz said:


> Either you gamble your money on it, or commit enough capital to it so you can effectively manage risk, and preserve your capital long enough to take advantage of the ones that run. With the volitility that the futures market sees, to me you would have to have at least 25-50k in capital.
> 
> At the moment this is well above me. So i guess i miss out. I'm not willing to do this any other way.
> 
> ...




Futures trading is certainly very risky but it is not a gamble if you know what you are doing, and have trading experience. 

I may not win all the time, but so far my winning trades have been more than my losing ones.

Yes, my capital is almost that amount, just a small player.

I also invest in commodity (metal) stocks, ie Southern Copper, BHP, Rio Tinto, Freeport etc.


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## Bush Trader (6 July 2007)

CanOz said:


> Imagine the inflation.
> 
> Looks like we're starting to enter the final phase of the economic cycle peak where commodities will be best...
> 
> ...




You should look inside our own little fish bowl if you would like to see just what inflationary pressure it will have domestically.

Fertilser Prices Have doubled (Look at IPL's share price in a rip roaring drought with low farm cash flows and high carry over fertilitility.  World markets have gone beserk, China, India, US all want to make fuel out of grain instead of converting it into food)

No irrigation water for the MIA, Gov’t trying to restructure = Less feed grain crops grown = Feed Grain Prices increase + bullish world grain prices, Nothern Hemisphere Crops either too wet or too dry
High Grain Prices = Lower margins or price hikes for intensive feed on industries, Cattle, Pigs, Chooks
Too much rain for  intensive horticulture – Gippsland, Hunter Valley – Crops wiped out
Produce in Short Supply = Competition at wholesale level = Increase in Veggie prices at the super market.
Low stock numbers Cattle & Sheep = more competition to procure stock for feedlots
Record High prices for secure irrigation water = Fruit growers increased costs, prices will have to go up or tree crops will be pulled out.
Throw in the $Aus in to the equation and it makes for some fun.

I trade shares part time, however Agriculture is how I eat.  Our Terms of trade are deminishing even though commidity prices are high.

Interesting times.  Actually is that not a Chinese curse “May you live in interesting times”


Cheers


BT


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## michael_selway (7 July 2007)

Any good cotton shares on ASX?

QCH, NAM, others?

thx

MS


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## BREND (7 July 2007)

michael_selway said:


> Any good cotton shares on ASX?
> 
> QCH, NAM, others?
> 
> ...




What for? Just buy cotton futures. Margin is only USD1,260 for 1 lot.


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## wayneL (7 July 2007)

BREND said:


> What for? Just buy cotton futures. Margin is only USD1,260 for 1 lot.



Margin means jack.

1 lot is 50,000 lbs. of cotton @ current price of $0.6445 per lb. is $32,225 USD of underlying value. That's about 38.5K AUD. Current volatility is 25% and current Average True range is 107 ticks.

That means an average days movement $535 USD. So in risk terms it would be the same as buying ~$40,000 worth of BHP.

That's not a huge contract, but one must think in these terms to appreciate the risk. It would be inappropriate  for someone with a small account to buy cotton futures. To think only in terms of margin is real dumb.


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## BREND (8 July 2007)

wayneL said:


> Margin means jack.
> 
> 1 lot is 50,000 lbs. of cotton @ current price of $0.6445 per lb. is $32,225 USD of underlying value. That's about 38.5K AUD. Current volatility is 25% and current Average True range is 107 ticks.
> 
> ...




The risk can be easily be controlled by putting a GTC stop order after u bought the futures.


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