Agribusiness Investing: Will Cotton Become Extinct?

Cotton (NYSE:BAL) has been a great pick for agribusiness investors.  Looking specifically at the iPath DJ AIG Cotton TR (NYSE:BAL), shares are up 27% year-to-date, and have gained 84% in the past 3 years.  The rapid increase in the price of cotton is causing companies to change their business model.

Let’s take a look at the changes being made to your clothes:

One of the smaller effects of the cotton boom will be seen at Aeropostale (NYSE:ARO).  The company is reducing its size on clothing tags in order to squeeze out 5 cents of savings per clothing item.

The world’s largest retailer, Wal-Mart (NYSE:WMT), will be using different blends of synthetic fibers in order to reduce its dependence on cotton and maintain margins.  Investors may also want to consider companies such as Ralph Lauren (NYSE:RL) and Coach (NYSE:COH) that have more pricing control, due to its higher end client base.

Hanesbrands Inc. (NYSE:HBI) is getting close and personal with its cotton saving tricks.  The company is currently developing news products made from flax, instead of cotton.  Around 60% of Hanes’ products contain at least 90% of cotton in them.  How serious is the company about using the flax crop in its products?  Well, Hanes has signed a 10 year deal with sustainable fabrics maker Naturally Advance Technologies.  Hanes estimates that flax will compose about 20% of the fabric content in a small number of items, which should begin to take place in Q3.

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Disclosure: No positions.

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