So true:
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How Do Changes In U.S. Cotton Production Impact Cotton Prices?
This is part of the series: [8 Ways Fundamentals Impact Cotton Prices, Quantified]
This is post #2 looking at how certain variables influence cotton prices.
I have explored how US Beginning Stocks relate to cotton prices.
How about US cotton production?
How do changes to US Cotton Production correlate with the price of cotton?
This is where US cotton production is simply the amount of cotton harvested in the USA in a given harvest season.
Using common sense, we would assume that more cotton production will lead to lower prices.
Conversely, less cotton being harvested will lead to higher prices.
It turns out that this intuition is correct.
Based on the best estimates I have calculated:
An additional 1 million bales of US cotton production would lead – on average – and all else being equal – to a 1 cent drop in the US price of cotton.
Said differently:
US Cotton Production moving from 5 to 6 million bales would, on average, make a cotton price of 70 cents move to approximately 69.0 cents.
The opposite is also true.
1 million fewer bales of US Cotton Production leads, on average, to a 1 cent increase in US cotton prices.
More U.S. cotton means lower U.S. cotton prices, of course.