This is part of the series: [8 Ways Fundamentals Impact Cotton Prices, Quantified]
This is post #6 looking at how different variables influence cotton prices.
For this post, let’s look at how changes to World Cotton Mill Use impacts cotton prices.
This is where World Cotton Mill Use is simply the amount of cotton that is globally consumed by cotton mills in a given year.
Basic economics tells us that, other things constant, more cotton consumed by cotton mills, should be associated with higher cotton prices.
Conversely, less cotton consumed on an annual basis would lead to lower cotton prices.
Based on my estimates, this instinct is correct.
As I have it calculated:
An additional 1 million bales of cotton used my mills would lead – on average – and all else being equal – to a .4 cent increase in the US price of cotton.
Said differently:
US Ending Stocks moving from 3 to 4 million bales would, on average, make a cotton price of 70 cents move to approximately 70.4 cents.
The opposite is also true.
1 million fewer bales of cotton consumed by cotton mills leads, on average, to a .4 cent decrease in US cotton prices.
The law of supply and demand holds: More cotton leads to lower prices, less cotton leads to higher prices.
