Cotton prices hit their highest since 1995 after yarn gurus sliced their estimate for world stocks, and pegged supplies at their tightest for 21 years.

The International Cotton Advisory Committee cut by 700,000 tonnes to 9.8m tonnes its forecast for world cotton stocks at the end of 2010-11.

The revision reflected in part a trim of 100,000 tonnes, to 4.0m tonnes, in the forecast for production in the US, the world's top exporter.

However, the committee's main changes were to its estimates for world consumption, which it raised to 25.1m tonnes, and imports, which it hiked by 500,000 tonnes to 8.5m tonnes.

"Imports are expected to continue to recover," the ICAC, an intergovernmental group, said, adding that the rebound would be "driven" by China, the world's biggest cotton user.

Volatility warning 

The revised estimates cut the level of stocks, as compared with consumption, to 36%, the lowest since 1989-90, and indicated a tighter market than the latest figures from the US Department of Agriculture, whose estimates are used as benchmarks in farm commodity markets.

The USDA last month forecast cotton's stocks-to-use ratio � a key measure of market tightness, which in turn has a big impact on prices � falling to 38%, the lowest for 16 years. The department will unveil fresh data next week.

The ICAC lifted its forecast for the average 2010-11 cotton price, as measured by the Cotlook A index, by 4 cents to 89 cents a pound.

However, it urged caution over its forecasts, warning that "the decline in stocks as a percent of supply suggests that cotton prices in 2010-11 will remain unusually susceptible to changes in crop prospects".

Prices rise 

At Barclays Capital, Sudakshina Unnikrishnan flagged the onset of the US cotton harvest as a potential trigger for softer prices, easing the supply tightness central to the market rally.

New York, cotton for October delivery hit 91.80 cents a pound, the highest level for a spot contract since October 1995, before retreating to close at 90.87 cents a pound, up 0.8% on the day.

The better-traded December lot finished 2.4% higher at a two-year high of 89.49 cents a pound.