The objective of this paper is to present a medium-run view of the U.S. cotton market. Medium run is defined as 4 to 5 years. Long-run projections-- generally around 10 years into the future--and short-run forecasts--1 to 2 years--seem to be the dominant market perspectives' offered by analysts. The former can concentrate on trends and ignore government policy, while the latter emphasize minimum forecast errors and immediate policy impacts. At a time like now when markets are in severe disequilibrium, and the capacity of policy instruments to restore equilibrium is being stressed, market analysis needs to focus on the medium run in order to fully account for policy impacts and to assess the strength of fundamental market forces so that future policy may be planned.

In addition to assessing the "speed of recovery" potential of policy and the planning issues, the multi-year nature of many policy instruments suggests that they should be examined over a period of years. Grain placed in the farmer-owned reserve may remain there for up to 5 years. Regular CCC loans have been routinely extended giving them a lifespan of 18 months to several years. Minimum target prices have been programmed through 1985. Trade policies such as the Multifiber Arrangement and the recently announced blended credit program are in effect for several years. The point is that many policy instruments define a multiyear market, and when government pulls a policy lever, it redefines the multiyear market.

This paper also examines cotton in relation to other crops. In past years, some long-run analyses have challenged cotton's comparative advantage. World demand for food and feed grains combined with growth in manmade fiber production and limited productivity gains in cotton have suggested that cotton's profitability may fall relative to other crops. At some point, these forces may be felt--will it be within 4 to 5 years?

Finally, the effects on cotton of two dominant policy tools are examined--the currently-announced acreage reduction program and target price. The former is a signal to farmers that they have overproduced and need to cut back; the latter is a signal that the government will maintain gross receipts, even when farmers produce all that the rules will allow. In the short run, these policies are contradictory, but how about in the medium run?