If the stocks-to-mill use ratio in the World-less-China continues to increase by another 5% in the following season, then the combined effect of the two-season increase in the stocks-to-mill use ratio in the World-less-China is expected to reduce the season-average Cotlook A Index by 6.6%.
The stocks-to-mill use ratio in China has a lagged effect on the Cotlook A Index. When the China stocks-to-use ratio increases by 5%, the average Cotlook A Index in the next season decreases by 0.36%.
To evaluate how well the model would have predicted prices in the past, one-season-ahead price forecasts were simulated with information at the end of each season for the seasons 1990/91 to 2006/07.
With perfect foresight of the stocks-to-mill use ratios in the World-less-China and China, the model would have correctly predicted price increases and decreases in all cases. The average absolute difference between the forecast with perfect foresight and the observed Cotlook A Index amounts to 4.8 cents per pound.
On the other hand, if historical forecasts of the stocks-to-mill use ratio are used instead of the actual ratios, price increases and decreases would have been correctly forecast 11 out of the 17 seasons, and the average absolute difference between the historical forecast and the actual Cotlook A Index amounts to 9.5 cents per pound.
Beginning in 2007/08, forecasts of the Cotlook A Index will be revised monthly based on a weighted average of the observed values of the Cotlook A Index during the current season and the latest annual forecast for the remainder of the season.
International Cotton Advisory Committee
marketing@alchempro.com
