How Do Changes In World Cotton Production Impact Cotton Prices? | SterlingTerrell.net

How Do Changes In World Cotton Production Impact Cotton Prices?

By: Sterling Terrell

This is post #6 examining at how different variables influence cotton prices.

For this post, let us look at how changes to World Cotton Production impacts cotton prices.

This is where World Cotton Production is the amount of cotton that is globally produced in a given year.

Economic theory tells us that, more cotton produced should mean lower prices, and less cotton produced should mean higher prices.

According to my calculations, this is correct.

As I have it estimated:

An additional 1 million bales of cotton produced in a given year would lead - on average - and all else being equal - to a 1.27 cent increase in the US price of cotton.

Said differently:

World Cotton Production moving from 100 to 101 million bales would, on average, make a cotton price of 70 cents move to approximately 71.27 cents.

The opposite is also true.

1 million fewer bales of cotton produced leads, on average, to a 1.27 cent decrease in US cotton prices.

Wait.  What?

Up is down, and down is up.

Economic laws do not seem to hold.

But that is what 40+ years of data tells us.

All that can maybe be said is that U.S. cotton production is more important to U.S. cotton prices than world cotton production.

This case is similar to what I found with changes in Cotton World Beginning Stocks.

This post is part of the series:  8 Ways Fundamentals Impact Cotton Prices, Quantified