Projecting United States cotton prices in an international market

Prices are the barometer of cotton market activity. They provide guides for the market participants engaged in making important economic decisions. Cotton prices in the U.S. are significantly affected by exports since more than one-half of the cotton produced in the U.S. is exported. The role of exports in cotton price determination should become even more important as world trade continues to expand. The major contribution of this study to cotton price analysis is its major emphasis on the effect of exports on cotton prices.; An econometric model with emphasis on both the domestic and foreign demand for U.S. cotton was developed for making conditional projections of U.S. cotton prices. The model contained a total of ten separable blocks with thirty-nine estimated structural equations and twenty-six identities. The export demand for U.S. cotton for the nine major U.S. cotton importing regions was estimated using a market share approach. The model predicted the U.S. cotton mill price and the average spot cotton price with a mean absolute percent error (MAPE) of less than 10 percent both within the sample period and in the out-of-sample period.; Price and income elasticities of the mill demand for cotton in the U.S. were estimated at {dollar}-{dollar}0.26 and 1.96, respectively. The elasticity of non-mill stocks with respect to the cotton spot price was {dollar}-{dollar}2.43. The model yielded short-run market share elasticities with respect to U.S. cotton export prices ranging from {dollar}-{dollar}0.57 to {dollar}-{dollar}3.84 with an average of {dollar}-{dollar}1.62 and long-run market share elasticities ranging from {dollar}-{dollar}1.68 to {dollar}-{dollar}9.42 for the major U.S. cotton importing regions. These results indicate that increasing U.S. cotton price relative to cotton prices of other cotton exporters would result in a substantial loss in U.S. cotton exports.; The model was also used to quantify policy effects on cotton consumption, stocks, exports, and prices. A policy experiment of dollar appreciation showed that a 10 percent dollar appreciation would decrease U.S. cotton exports by 3.55 percent and lower domestic cotton prices by approximately 8 percent.