Analysts have rated cotton as emerging among the best-supported crops, in pricing terms, from a slew of key US data, with Rabobank saying the fibre may witness "another bullish scenario".
The US Department of Agriculture, in its first estimates for 2011-12 crops released on Wednesday, pegged world output at 124.7m bales, a rise of 8.8%, enough to return the market to a production surplus and ease a squeeze on supplies which drove prices to record highs.
The data, reflecting a forecast of a record harvest in India, the second-ranked producer, fuelled a modest sell-off in New York futures which continued in the current session when New York's July contract fell 2.1% to 147.22 cents a pound, well below the record 227 cents a pound for a spot contract reached in February.
The new crop December lot shed 2.2% to 122.50 cents a pound.
However, a number of analysts questioned a downbeat interpretation of the data, given that the forecast included an estimate of hefty losses among US farmers to adverse weather, which has bought flooding to some areas of the South, besides drought to Texas, the top producing state.
The USDA forecast the domestic crop coming in marginally below last year's, despite a 16.4% rise in sowings, citing "above-average abandonment and slightly below-average yields due to severe drought conditions in the south west".
The drop means the US, the top cotton exporter by a margin, will "not be able to make up any potential production shortfalls elsewhere", as it has done this season, Rabobank said.
"In our view, the supply and demand outlook remains tight in the new season. Due to low inventories, if production estimates are not achieved, a return to another bullish scenario appears likely."
And the bank was supported by other analysts. Luke Mathews at Commonwealth Bank of Australia termed the estimates "somewhat bullish" for new crop cotton.
World cotton stocks still looked set end 2011-12 "relatively tight", at 40% of consumption, compared with a 55% figure in 2008-09.
Australia & New Zealand Bank said that "the report for cotton was particularly bullish".
"Given dry conditions in the US, the USDA is now projecting essentially no growth in US harvested cotton acreage on last year," the bank said.
"Global 2011-12 forecasts were also positive, with the USDA increasing mill use by 3m bales while only projecting production higher by 8.7% year on year."
The USDA estimates were also more downbeat, in production terms, than those last week from the International Cotton Advisory Committee, which estimated world output rising by more than 11%, to 127m bales.