Rapidly expanding demand in the United States for ethanol and biodiesel are leading to revised projections of corn and soybean plantings. While biofuel production does not directly affect cotton, shifts occurring in the planting of corn and oilseeds may reduce the number of acres planted to cotton. Fewer cotton acres may translate into higher cotton prices. The cottonseed portion of farmers' net revenues may be affected as well. Increased demand for oilseeds may lead to higher prices for cottonseed oil which in turn may drive cottonseed prices higher.

Using a partial equilibrium model of the world fiber market developed at Texas Tech University, we will estimate the impact that rising ethanol and biodiesel demand in the U.S. will have on the cotton industry. This impact will be measured in terms of cotton production (effect on area planted) and prices (both cotton lint and cottonseed).