This is part of the series: [8 Ways Fundamentals Impact Cotton Prices, Quantified]I spend a good bit of time thinking about cotton prices.Maybe you do too.
I just wanted to share some of my observations as I look at the data.
The question many times is:
If something happens in the world, how will that change affect the price of cotton?
The answer is not always that easy – but we can still look at how variables correlate as time goes by to get a better idea.
In this example, let’s look at USA Beginning Stocks.
How do changes to USA Cotton Beginning Stocks correlate with the price of cotton?
This is where USA Cotton Beginning Stocks is the amount of US cotton in storage, not used last year, or exported, as the new cotton harvest season begins.
We would assume more cotton on hand leads to lower prices, and less cotton leads to higher prices (standard economic theory).
And we would be right.
Based on the best estimates I have calculated:
An additional 1 million bales of Beginning Stocks in the USA cotton market would lead – on average – and all else being equal – to a 1.2 cent drop in the US price of cotton.
Said differently:
US Beginning Cotton Stocks moving from 5 to 6 million bales would, on average, make a cotton price of 70 cents move to approximately 68.8 cents.
The opposite is also true.
1 million fewer bales of USA Beginning Cotton Stocks leads, on average, to a 1.2 cent increase in US cotton prices.
