This is part of the series: [8 Ways Fundamentals Impact Cotton Prices, Quantified]
This is post #4 looking at how certain variables influence cotton prices.
For this post, let’s look at the effect US cotton ending stocks has on prices.
How do changes to US Cotton Ending Stocks correlate with the price of cotton?
This is where US cotton ending stocks is the amount of cotton left over in USA storage after a particular harvest season.
A priori, we would assume that larger cotton ending stocks would lead to lower prices.
The more cotton not consumed, in a given year, the lower we would expect prices to be.
Conversely, we would also predict that less cotton ending stocks in US storage would lead to higher prices.
With the numbers I have, this intuition is correct.
Based on the estimates I have calculated:
An additional 1 million bales of US ending stocks would lead – on average – and all else being equal – to about a 4 cent decrease in the US price of cotton.
US Ending Stocks moving from 3 to 4 million bales would, on average, make a cotton price of 70 cents move to approximately 66 cents.
The opposite is also true.
1 million fewer bales of US Cotton Ending Stocks leads, on average, to a 4 cent increase in US cotton prices.
More cotton means lower prices. Less cotton means higher prices.
Funny how scarcity works.