U.S. Cotton Prices and the World Cotton Market: Forecasting and Structural Change
The purpose of this study was to analyze structural changes that took place in the cotton industry in recent years and develop a statistical model that reflects the current drivers of U.S. cotton prices. Legislative changes authorized the U.S. Department of Agriculture to resume publishing cotton price forecasts for the first time in 79 years. In addition, systematic problems have become apparent in the forecasting models used by USDA and elsewhere, highlighting the need for an updated review of price relationships. This study concluded that a structural break in the U.S. cotton industry occurred in 1999, and that world cotton supply has become an important determinant of U.S. cotton prices. China’s trade and production policy also continues to be an important factor in price determination. The model developed here forecasts changes in the U.S. upland cotton farm price based on changes in U.S. cotton supply, changes in U.S. stocks-to-use ratio (S/U), changes in China’s net imports as a share of world consumption, selected farm policy parameters, and changes in the foreign supply of cotton.
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