Cotton experts cut their forecast for world production of the fibre – but not by as much as many analysts have pencilled in.
Cotton futures eased despite supportive comments from Standard Chartered.
The International Cotton Advisory Committee cut by 500,000 tonnes, to 26.9m tonnes (123m bales), its forecast for world production of the fibre in the newly-started 2011-12 season.
"Severe drought conditions" in Texas, America’s top cotton-producing state, will "not only increase abandonment but also limit yields", the committee, an intergovernmental group, said.
The total crop in the US, the biggest cotton exporter, was estimated at 3.5m tonnes.
Behind the curve?
However, the downgrades left the ICAC estimates nearly identical to US Department of Agriculture forecasts which many analysts are expecting to be cut, potentially in a crop report next week, when a fresh US yield estimate is factored in.
USDA officials are currently using a yield figure of 800 pounds per acre, in line with that last year’s result, despite the worst drought in Texas since records began in 1895.
Separate USDA data overnight showed 30% of the domestic crop in "good" or "excellent" condition, compared with 66% a year ago.
Furthermore, the ICAC downgraded its forecast for cotton consumption, by 200,000 tonnes to 25.0m tonnes, saying demand would be "moderated by relatively high cotton prices and competition from chemical fibres".
In New York, cotton for December delivery dipped 1.1% to 103.93 cents a pound as of 13:00 GMT. (14:00 UK time).
Separately, Standard Chartered analyst Abah Ofon joined analysts forecasting that the slide in cotton prices, which have tumbled by more than one-half from record highs set in March, has run its course for now.
"We see limited downside for cotton prices from current levels," Mr Ofon said.
The assessment was based on expectations that demand will be whetted by the decline in values, besides the state of the crop in Texas, which accounts for one-half of US output.
"We expect current market prices to generate significant buying interest from China," the top cotton-importing country, he said, forecasting that New York’s near-term cotton contract will average 110 cents a pound in the current quarter, and 115 cents a pound in the last three months of 2011.
At Barclays Capital, analyst Sudakshina Unnikrishnan forecast "a further downgrade in the USDA’s estimate of the 2011-12 US cotton crop, with the drought in Texas more than offsetting higher plantings year on year".
However she added that "prices are unlikely to move significantly higher, as global production estimates ex-the US remain in good shape".