International Cotton Price Differentials and Relative Scarcity of Supply

Carlos Valderrama


Economic theory suggests that under perfectly competitive conditions prices of commodities in international markets depend on the available supply. When a commodity is not homogeneous,the price differential between a benchmark price and a particular export price should depend on additional supply and quality difference, which would measure the distinctive characteristics of a particular commodity. In the cotton market, the differential between either the Cotlook A or B Indices and the price quote of cotton from a particular country is usually seen only as a measure of quality differentials. Evidence presented in this paper suggests that price differentials are also affected by the supply of cotton available for exports. However, this relation may be weakened when artificial mechanisms, such as government programs, intervene.

Reprinted from Proceedings of the 1994 Beltwide Cotton Conferences pp. 436 - 442
©National Cotton Council, Memphis TN

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Document last modified Sunday, Dec 6 1998