The Secretariat, in consultation with Dr. Louis Goreux, developed a new model in 2007 to forecast season averages of the Cotlook A Index. The Cotlook A Index is an internationally accepted indicator of the average price of cotton from all major origins delivered to Far East destinations (primarily Shanghai). The Cotlook A Index is published each day, and the season average is calculated from the daily quotes. The purpose of the ICAC Price Model 2007 is to identify the most important statistical indicators of annual changes in average cotton prices. The model is used by the Secretariat to inform government officials and the private sector as to what fundamental statistics indicate for changes in average cotton price levels in the coming season.
The price model relates the change in the Cotlook A Index from one season to the following one, to the corresponding change in the stocks-to-mill use ratio in the “World less China” and past changes in the stocks-to-mill use ratio in the “World less China” and in “China”. The fourth explanatory variable captures the impact on international prices of a domestic policy in China during the period 1991/92 to 2002/03.
The annual forecast is revised monthly. Each new forecast for the same season-average Cotlook A Index is a weighted average of the observed average of the Cotlook A Index during the current season and the latest annual forecast for the current season.