Summary Despite the plunge in crude oil prices, cotton has remained relatively stable. Ending stocks and production both declined from the 2014/15 planting season. Cotton looks fairly valued here and doesn’t represent a good enough value for a buy recommendation. Welcome back to coverage on the iPath’s Dow Jones-UBS Cotton Total Return Sub-Index ETN (NYSEARCA: BAL ). This ETN has done a perfect job at tracking its index. For more information on the Cotton Index BAL follows and how this ETN tracks it, please check out a previous article here . A Year in Review Overall, cotton had a decent 2015. The biggest story came in the second half of the year. Despite plummeting oil prices, cotton has held its own. We previously discussed how cotton has a correlation to oil in this piece. See below for a comparison between BAL and The United States Oil ETF (NYSEARCA: USO ). In 2015, for the first time in over five years, cotton stocks ended the year lower than where they started. Data points on ending stocks and production decreases have been the main supporter of spot prices through oils decline. A Look Ahead As cotton traders look to 2016 there are two key metrics to keep an eye on, supply and demand. I know, I know, like you didn’t already know how economics work. However, with commodities, spot prices are sometimes supported by a belief that either demand will increase or production will decrease. This is the current case for cotton. Supply As already noted, ending stocks are finally headed in the right direction. However, they are still only about 10% off the all-time high ending stocks set last in 2014. China is solely credited for this as they began increasing their strategic reserves in 2011. As of December 2015 China had 14,157,000 metric tons in stock. This compares with only 6,767,000 in the 2011/12 season. See the spot price of cotton below in response to Chinese policy. The huge spike you see on the chart is the reaction to Chinese reserve policy. In July of 2015 China began selling state owned cotton stocks. Interestingly these supplies were priced at a premium to spot prices at the time. There has been much talk and speculation about the quality of Chinese stocks. The oldest sales in 2015 came from the 2011 harvest season. If there really were quality concerns with these stocks, given the volume sold, we would know more about it by now. I do believe there were isolated cases of quality issues however the widespread concerns and hype was a little overdone. There are five countries that make up the majority of cotton production and in order they are India, China, The United States, Pakistan, and Brazil. Globally production has fallen every year for the past five years. Demand The total consumption of cotton has risen every year for the last five years, despite the loss of market share. The current purchasing volume from mills indicates a consistent to cautious outlook for demand going into 2016. Current ICE cotton futures for December 2016 have ranged from 62-66 cents this year. Currently ICE futures all the way until October of 2018 are trading between 65.43 and 64.34 with the 2018 date representing the lowest in the range. In other words, investors aren’t betting on cotton spiking any time soon. Planting Seasons and Acreage Most volatility in cotton prices takes place into the summer months due to planting seasons. China plants from April to May and harvests from September to October. In northern India cotton is planted from March to June while southern India plants from May to July. In the United States planting occurs mainly from March to May and the harvesting is completed by December. The first half of the calendar year with cotton is spent positioning for what will happen during the second half. Right now there isn’t enough information on projected acreage but that will start to be made available soon as we get closer to planting season. In 2015 global acreage, in millions of hectares, stood at 31.24. This compares to 34.01 during the 2014/15 season. Kilogram yield per hectare also declined for the third straight year from 799 in 2013/14 to a projected 723 as of December 2015. For continuing information on production, demand, and planted acreage I recommend the monthly reports on cotton from the USDA . Conclusion China’s reserve policy will play a dominate roll in 2016 cotton prices. The number of planted acres and production of cotton has continued to decline despite rising demand. Cotton continues to lose market share to other fibers. With the current spot price hovering around 64 cents, this does not offer enough of a discount to what I see being a good value for cotton. Pending any unforeseen production issues, I see cotton remaining relatively flat in the near-term. The risks and rewards of an investment in cotton currently seem fairly even. I would suggest you wait for a better opportunity to initiate any new positions in BAL. Thank you very much for reading and I wish you a very profitable 2016.