A structural time series approach utilizing the state space model is used to analyze the impact of exchange rate volatility on the bilateral U.S. cotton exports to major export destinations. An EGARCH (Exponential Generalized Autoregressive Conditional Heteroskedasticity) model with normal and non-normal errors is used to estimate the volatility of exchange rate. Monthly data from 1995 to 2006 is utilized for the analysis. The results indicate a negative relationship between exchange rate volatility and U.S. cotton exports for most countries. The stochastic process governing the U.S. cotton exports to different countries is found to be permanent as well as transitory. The results support the view that the impact of exchange rate volatility can be better understood by analyzing markets separately.