Economics, 3rd Edition

IN THE NEWS

The Price 

of Cotton

The graph shows  

the price of cotton 

on world markets 

measured in 

euros per pound 

between October 

2010 and October 

2012. Starting at 

a price of around 

90c per pound the 

price of cotton rose 

sharply between 

November 2010 

and March 2011 

reaching a high of 

€1.64 per pound 

before falling to 

around 63c per 

pound in October 

2012.

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FIGURE 3.12

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May-11Jun-11Jul-11

Aug-11

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May-12Jun-12Jul-12

Aug-12

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Oct-12

Nov-11

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Jan-12

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CHAPTER 3  THE MARKET FORCES OF SUPPLY AND DEMAND  69

farmers respond to the increased 

price? For some farmers it will now 

be worthwhile them planting cotton 

if the price they get is around 

€1.50– 

€1.60 per pound. Each farmer has to 

make an individual decision about 

whether to grow cotton but if there 

are large numbers of farmers across 

the world all making a decision to 

devote more land to cotton the result 

is going to be more cotton supplied.

A look at cotton stocks shows 

that between 2006 and 2009 world 

cotton stocks remained fairly 

stable at around 60 million bales. 

In 2010 stocks dropped to around 

48  million bales. Since that time, 

however, stocks have risen again 

and forecasters were predicting that 

world cotton stocks would reach 

around 76 million bales in 2013.

The increase in the supply of 

cotton has led to prices falling and 

those in the industry were not pre-

dicting any fundamental changes in 

either supply or demand over the next 

two years. Of course, no-one can say 

for sure that prices will remain stable 

at around 60c per pound. Some of the 

estimates for future stocks of cotton 

were based on existing acreage 

levels devoted to cotton and also on 

the assumption that nothing would 

happen to cause cotton harvests 

to change dramatically. Cotton is a 

crop, however, and is subject to pests 

and diseases and the vagaries of the 

weather. No-one can tell whether the 

2013 or 2014 crops might be affected 

by drought or flood.