Commodities Watch: Cotton Prices and Retail Sales; Oil Highs; Stockpiling Rare Earths; Silver Vs. Gold (M, LTD, JWN, JCP, KSS, GPS, BAL, USO, MCP, REE, AVL, REMX, SLV, GLD)

Time for our daily look at the world of commodity prices and key developments.  We have cotton issues, oil spikes, issues around rare earth elements, and precious metals on the docket.  Even though cotton prices continue to rise, US retailers don’t appear to be suffering any consequences — yet. Same-store sales at 25 retailers tracked by Thomson Reuters rose 1.7%, compared with analysts’ expectations of a drop of -0.7%. Macy’s Inc. (NYSE: M), Limited Brands Inc. (NYSE: LTD), Nordstrom Inc. (NYSE: JWN), J.C. Penney Co. (NYSE: JCP), and Kohl’s Corp. (NYSE: KSS) all posted better-than-expected gains. Gap Inc. (NYSE: GPS) was one of a handful of retailers posting disappointing results with same-store sales falling -10%, worse than an anticipated drop of -7%.

The effects of higher cotton prices are lurking in the background and could appear in the second half of the year. Retailers, for the most part, have not yet passed along higher cotton prices to customers, and analysts are expecting to see a 15% to 20% rise in clothing prices sometime this summer.

Cotton prices have risen more than 40% since the beginning of the year, and there does not appear to be a slackening of demand. The iPath DJ-UBS Cotton Total Return Sub-Index ETN (NYSE: BAL) is trading at about $110/share today, up about 0.5% within its 52-week range of $35.64-$117.33.

We don’t want to spend too much dwelling on the consistent rise in oil, but we have to address it.  Crude oil futures on NYMEX are playing catch-up to Brent and we saw a $110 per barrel hit today.  This marks a high not seen since 2008 when oil was on the decline after the energy bubble popped.  Without surprise, the United States Oil (NYSE: USO) exchange traded product hit a 52-week high as well.  Shares were up over 1.5% at $44.07 at the peak so far today.  For the sad part, Gasbuddy.com has the regular gasoline average up at $3.72 today and that is the average seen since September 2008.

US Congressman Mike Coffman (R-CO) has introduced legislation that would create a US stockpile of the rare earth minerals crucial to many advanced military weapons systems. The stockpile, which Coffman calls an “inventory,” would be amassed by a new federal agency that would create a domestic US market for rare earth minerals and make it easier for domestic sourcing of the minerals.

It’s not exactly clear how this “inventory” would be managed. According to the Congressman, the new agency would establish long-term supply contracts and then sell the supplies to federal contractors. What is clear, however, is that building a federal stockpile, or inventory, would increase demand for the rare earths. Likewise, of course, absence of a stockpile introduces uncertainty about supply and could drive up prices on prospects of a shortage of supply.

Shares of rare earths miner Molycorp Inc. (NYSE: MCP) are up nearly 7% today, to $66.35, with the 52-week range of $12.10-$67.77. Molycorp is based in Coffman’s home-state of Colorado. Shares of Rare Elements Resources Ltd. (AMEX: REE) are up more than 12%, to $14.74, within a 52-week range of $1.15-$17.92, and shares of Miner Avalon Rare Metals, Inc. (AMEX: AVL) are up more than 5%, to $9.15, in a 52-week range of $1.09-$9.50. The Market Vectors Rare Earth/Strategic Metals ETF (NYSE: REMX) is up more than 1.6%, to post a new high of $27.55.

According to the World Silver Survey 2011 issued today by research firm GFMS Ltd., large increases in investment and industrial fabrication drove silver demand in 2010, and expects basically the same performance in 2011. Metals website Kitco.com notes that GFMS is wary of the current gold/silver ratio. We noted the almost historically low gold/silver ratio of around 37 earlier this week with detailed graphs, far below the more usual range of 50-70.

Both gold and silver are trading nearly flat today. The iShares Silver Trust (NYSE: SLV) is up a fraction, to $38.63, within a hair of the top of its 52-week range of $16.63-$38.82. The SPDR Gold Trust (NYSE: GLD) is down about -0.25%, to $142.15, after setting a new 52-week high this morning at $142.89.

Paul Ausick