Cotton prices climbed to unexpected levels in February and March 2008 and the 2007/08 Cotlook A Index is now forecast at 74 US cents per pound. In September 2007, the ICAC Secretariat forecast an average Cotlook A Index of 68 US cents per pound for 2007/08. In July 2007, the World Bank forecast the calendar year 2008 average Cotlook A Index at 59.5 US cents per pound. In June 2007, the Australian Bureau of Agricultural and Resource Economics forecast an average Cotlook A Index of 59.2 US cents per pound for 2007/08, while FAPRFs forecast, as of January 2007, amounted to 66 US cents per pound. The present article attempts to shed some light on the causes of the unexpected increase in cotton prices by analyzing (1) the flow of investment funds to thecotton futures market, and (2) the composition of the cotton futures and options markets by traders, and their relation with cotton prices.
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