Funding for the Cotton Economics Research line-item from the Texas Legislature became effective on September 1, 1995. During the first year, the College of Agricultural Sciences and Natural Resources and the Department of Agricultural and Applied Economics established research priorities and implemented six research projects with the resources. An annual report of the first year's activities and accomplishments was produced in September, 1996 (Report No. CER-96-1). This report summarizes the activities and progress made during the two years of the biennium. Some of the specific research projects are continued from 1995/96, but some are new projects for 1997/98 and beyond are discussed. Six two-year projects were initiated with the funding in 1995/96 ($133,500 for each year of the biennium), one project for each of six faculty principal investigators. Proposals were submitted by the faculty, reviewed by Drs. Robert Albin, Sujit Roy, and Don Etheridge, and approved for funding.