I see (www.cotlook.com) cotton prices have hit a 2½ year high on fears that the Pakistan floods will cut supply – the country produces nearly 7% of world supply. The dynamics of this are pretty easy to lay out, just like many other cyclical industries:
- The total of industry current capacity [a resource] determines maximum output
- … which balanced against current demand determines price through normal elasticity mechanisms.
- If prices rise, so do supplier-profits – and crucially, so do expected profits [an ...