For the last week I have been considering the possibility of investing in cotton. Here are my main reasons.
1.- Cotton is heavily subsidized by the US government, and that means that its price is artificially low. Since the US has heavy deficits and is starting to take fiscal measures, it is possible that this particular subsidy is cancelled. Only a handful of cotton farmers are benefitting from subsidies, so it looks easy to cancel them.
2.- Since arable land does not increase and population grows, it is possible that more land will be used to grow corn and other biofuel products, in an effort to fight PCO. This would make cotton scarcer, hence more expensive.
3.- The main competition to cotton are artificial fibers, such as polyester, made from oil. Cotton has been losing share to fibers for decades, being now in an all time low of 33% (http://www.cirfs.org/KeyStatistics.aspx). Within a PCO context oil-made fibers would
a.- Become more expensive, lifting the price of cotton
b.- It is possible that governments would advice reducing synthetics fabrication, in an effort to preserve oil, lifting again the cotton price.
I would like to know if some other iTuliper has been thinking along similar lines and wants to comment something, point to some error with my reasoning, give further reasons to why cotton is an excellent PCO investment, and so on.
Last edited by Alvaro Spain; 02-15-13 at 01:05 AM.
Reason: to improve readability
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