Key uncertainties of the cotton industry, such as yield per acre, domestic mill consumption, and export sales, are evaluated using a microcomputer-based econometric model, AGGIES/Cotton (AGricultural Globally Integrated Econometric System), to generate a baseline forecast and alternative scenarios for the 1988/89 crop year. Various discretionary provisions of the 1988/89 cotton program are analyzed in relation to these simulation results. Effects of uncertainties are discussed with respect to alternative production and demand projections in relation to a carryover stock target of 4 million bales, as specified by the 1985 farm legislation and deviations from this target.

An econometric model can best be utilized in the policy process for a baseline economic projection, impact simulation of alternative economic outcomes, and evaluation of policy response to uncertainties. The most useful model application to the cotton industry, under the existing program of marketing loan and the dynamic transitions in the world market, is to forecast major market trends and evaluate the areas of uncertainty for policy decisions.