We need to invest in assets that can generate returns greater than prevailing inflation if we want to outpace inflation and truly build wealth. Rapid price hikes threaten your hard-earned wealth and destabilize an economy. The issue is especially relevant for families with fixed incomes and retirees living on low budgets. As a result, you may struggle to pay growing housing, food, energy, and medical costs due to the demands of inflation over time. To generate wealth and fight inflation, we must invest in assets that provide a higher return than continuous inflation.
In this blog, we’ll discuss why cotton trading in Pakistan is an effective investment strategy today to protect against excessive inflation. Cotton trading in Pakistan correlates with inflation and can produce meaningful returns on your investments in times of high inflation.
Cotton Trading in Pakistan
Pakistan’s most significant cash crop is cotton, and exports of cotton products make up about 55% of the nation’s total foreign exchange profits. Cotton is grown by over 26% of farmers, occupying more than 15% of all arable land. It is primarily produced in two provinces, Punjab and Sindh.
In recent years cotton prices increased globally. However, Pakistan has experienced a rapid increase over the past year. As a result, cotton prices have recently hit Rs 23,000 per maund, the most in the nation’s history. Furthermore, cotton trading in Pakistan is anticipated to improve in months. According to experts, production will rise due to favorable weather and adequate water, fertilizer, and pesticides.
The increase in cotton prices in the nation has encouraged farmers to use improved agronomic management techniques to increase yield.
Why Invest in the Cotton Trade?
One of the most common reasons individuals invest in cotton is for diversification and inflation protection. However, other incentives attract investors to the cotton market, some of which are discussed below.
Hedge against inflation: Commodities are frequently used to defend against inflation. Cotton can be grown constantly, but there will always be a limited supply in the market at any given time. This means it will usually retain its value even when inflation grows.
Rising oil prices: Cotton harvesting and production costs are significant, and it consumes a lot of oil, especially compared to other agricultural commodities. If the price of crude oil rises, the price of cotton is expected to follow and could be an excellent investment.
Speculation: Cotton is traded like any other commodity, and its future price can be predicted. Many factors can influence its value, making it an appealing option for short-term speculators. For example, in 2010-2011, its price increased by about 200% months.
Ways to Invest in Cotton
There are several ways to invest in cotton; depending on your investment type, some may be better suited to you than others. Below, we’ve described several ways you can invest in cotton.
Invest in Cotton Stocks
Purchasing shares in firms directly or indirectly related to the cotton sector is an excellent way to gain market exposure—stocks range from cotton manufacturers to clothing brands. Companies interested in cotton trading in Pakistan will follow the commodity.
Invest in Cotton ETFs
Purchasing shares in exchange-traded funds is one of the simplest and least expensive ways for new investors to get started. ETFs track the performance of a specific industry or even the price of futures contracts, and some track the price of cotton.
