A multi-stage hedonic market model of cotton characteristics with separable supply and demand

Abstract

This study examined the impacts of fiber characteristics on cotton prices from 1976 to 1986 for 4 production and marketing regions of the United States. A set of 11 equations were estimated to determine the effects of cotton fiber characteristics on cotton prices. Trash, color, staple length, micronaire, and strength were found to have statistically significant impacts on cotton prices. Length uniformity was not statistically significant. Characteristic effects were found to vary across time and across regions. However, trends in attribute values were similar for all characteristics across all regions. Characteristic price flexibilities were calculated using the regional base prices and characteristic averages of each year. Cotton prices were not price responsive with respect to characteristic variation. In this context, percentage changes in characteristic levels did not cause equivalent percentage changes in cotton prices. A set of 24 equations found that cotton characteristic values were functions of other characteristics as well as characteristic specific demand shifters, base price and proportion of open end spindles to ring spindles. Characteristic impacts on characteristic values were similar across regions, though some variation of effects were present. The effects of base price were also similar across regions. The proportion of open end spindles to ring spindles affected characteristic values with the largest impacts occurring in the West. Separate systems of equations were constructed to estimate the effects of environmental variables on each cotton characteristic in each production region of the country. Seasonal rainfall and temperature affected characteristics in all regions though parameter estimates and functional forms varied considerably among production areas. There is a growing recognition of the need to understand the values of fiber characteristics. Fiber characteristic values affect the revenues of producers and the costs of buyers. The results of this study demonstrate that there is a functioning market for cotton characteristics. The characteristics model constructed in this paper is useful because it presents an alternative to the current method of determining fiber quality premiums and discounts.