Research On Commodity Price Behavior Based On Inventory Perspective

Crop year2010for the cotton market is very unusual. It experienced a rapid rise and sharp decline in cotton prices. In the context of soaring and slumping in cotton prices, the article attempts to study cotton price behavior from stock perspective.This paper demonstrated that the normal function of stock is to ease the contradiction between production and demand, thus stabilizing price. However, in the real environment of cotton market, under the combined effects of farmers, the private sector and government, cotton inventory increased while price soaring. Futures market can play a crucial role in determining the storage decision in the underlying spot market. However, by comparing the Sino-US cotton futures price forecasting ability, it found that China’s cotton futures prices failed to guide rational storage decisions. Instead, futures prices supported the excessive cotton storage. The reverse operation of the farmers and the private sector on the stock not only distorted the normal supply and demand signals, but also exacerbated the price fluctuations. The large price volatility harmed the interests of the parties in the industry, and also is not good for the sustained and healthy development of the cotton industry.Both qualitative and quantitative methods are used in this analysis. The paper is structured as follows. Firstly, an overview of the major past research related storage and price is provided. Then the current situation of cotton market is described which contains supply, demand, trade, price and cotton futures. According to the different categories of participants in the cotton market, their inventory motives are analyzed. Then an analysis of forward futures contract price forecasting ability between the Sino-US futures markets is developed. Empirical analysis is carried out in next section to explore why inventory changes have such a dynamic impact on cotton price while last section summaries and concludes.It is suggested in this paper that we should improve the cotton reserve system, intervene cotton market appropriately; try to use the futures market well, encourage hedging; improve cotton inventory statistics, and strengthen information disclosure.