ABSTRACT

Fluctuations in cotton yarn prices are influenced by several factors, including present and forecast supply and demand of inputs and textile product outputs, prices of alternative fibers, prices of raw materials, import and export penetration, and evolving competitive strategies in response to downstream price pressures. Yet perhaps no variable tends to have as much influence on cotton yarn prices as the price of the raw material itself. Fluctuations in cotton fiber prices paid by domestic textile mills coupled with low textile prices received by these mills may be leading to an unprecedented margin squeeze on these manufacturers. This study uses monthly data of fiber and yarn prices to study the relationship between raw material costs and asking prices of domestically-produced yarns and how this has relationship has evolved over time. Correlation analysis shows the responsiveness of yarn prices to cotton prices has strengthened over time across different yarn counts of open-end and ring-spun yarns. Further analysis shows yarn prices tend to be more responsive (i.e., elastic) to major cotton price declines rather than gains.