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Price Relationship in the US Fiber Market: its Implications for US Cotton Industry

Price Relationship in the US Fiber Market: its Implications for US Cotton Industry. Suwen Pan, Samarendu Mohanty and Mohamadou Fadiga Texas Tech University. Fiber Types. Natural Fibers (staple) Plant fibers: cotton, jute, linen and hemp Animal Fibers: wool and Silk

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Price Relationship in the US Fiber Market: its Implications for US Cotton Industry

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  1. Price Relationship in the US Fiber Market: its Implications for US Cotton Industry Suwen Pan, Samarendu Mohanty and Mohamadou Fadiga Texas Tech University

  2. Fiber Types • Natural Fibers (staple) Plant fibers: cotton, jute, linen and hemp Animal Fibers: wool and Silk • Man-Made Fibers (filament and staple) Cellulosics (Reconstituted plant fibers): Rayon and acetate Synthetics (Petroleum based polymers): polyester, nylon and acrylic 

  3. World Consumption of Major Fibers 2003 1960 4.6% 17.1% 40.7% 52.8% 9.9% 68.4%

  4. World Wide Fiber Consumption 000 MT 

  5. Annual Fiber Prices

  6. Annual Fiber Prices Cents/lb

  7. Annual Fiber Prices Cents/lb

  8. Things To Keep in Mind • The increased market share of synthetics in the fiber market has altered the relationship of prices between the fibers. • As the use of man-made fibers increases, the role synthetic and cellulosic capacity plays in price formation of the fibers becomes increasingly important.

  9. Objectives • Analyze the dynamic relationship between cotton and polyester prices. • Check whether there exists asymmetry of price transmission between cotton and polyester price

  10. Literature Review • Meyer(1999) • Fang et al. (2001) • Goodwin and Schroeder (1991) • Hudson et al (1996)

  11. Data • National cotton and polyester mill-delivered monthly prices between Jan 1975 and Dec 2002

  12. Model • Trace Test • Chavas-Mehta (2002): the error correction model of vector autoregression with the Cholesky decomposition of the variance of et • Likelihood ratio test

  13. Cotton and Polyester Prices

  14. First Difference of Cotton and Polyester Price

  15. The augmented Dickey-Fuller test

  16. The Continuous Trace Test

  17. ML Estimation

  18. ML Estimation(Con.)

  19. ML Estimation (con.)

  20. Granger Causality Likelihood Ratio Test

  21. Asym. Likelihood Ratio Test

  22. Conclusion (1) • Cotton and polyester prices cointergrated over much of 1983-2002. • Not consistently cointergrated before 1983 • In the middle of 1985, 1988-89, and 1995, these prices were not cointegrated

  23. Conclusion (2) • Asymmetry transmission: Cotton on cotton; Polyester on polyester; Cotton on polyester. • No contemporaneous effects

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