Price information in producer markets: an evaluation of futures and spot cotton price relationships in the Southwest region using cointegration

Producer spot (cash) prices of cotton from the Southwest region were compared to futures prices for cotton to examine the cash/futures price relationship using the cointegration technique. The results showed that the cash producer price and the futures price were not consistently related. The futures and cash prices were cointegrated in 2 of 4 years, while not cointegrated in the other 2 years. The inconsistency indicates that the reliability of the futures price as a source of price information to producers of cotton in the Southwest is questionable. This relationship may be arising from quality uncertainty in the producer market.