This is part of the series: [8 Ways Fundamentals Impact Cotton Prices, Quantified]
This is post #5 looking at how certain variables influence cotton prices.In reality, this is a bit of an egg in the face post.
It is a lesson that things are not always perfect if you will, or as they should be.
For this post, let’s look at how changes to World Beginning Stocks impact cotton prices.
This is where World Beginning Stocks is simply the amount of cotton globally in storage at the beginning of a given harvest season.
Economics tells us that, other things constant, more cotton in storage as harvest begins, should be associated with lower cotton prices.
Conversely, less cotton in storage would lead to higher cotton prices.
Based on my estimates, this is upside down.
As I have it calculated:
An additional 1 million bales of US ending stocks would lead – on average – and all else being equal – to a .5 cent increase 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 70.5 cents.
The opposite would also be true.
1 million fewer bales of US Cotton Ending Stocks leads, on average, to a .5 cent decrease in US cotton prices.
What in the world? More cotton leads to higher prices?
I would say this:
1. My model is not perfect (No statistics model is.).
2. And, based on the data alone, there is probably a very loose – if any meaningful – relationship between cotton World Beginning Stocks and the US price of cotton.
Many other variables seem to have a more significant impact on the price of cotton.