The rally in cotton prices stalled amid cautions that the cut in US sowings in prospect this year may prove as drastic as forecast, and that Chinese demand may further disappoint as well.

New York's December 2013 cotton contract was on course to fall for the first time in 10 sessions, breaking a winning streak supported by waning ideas for US growings of the fibre this year.

On Monday, the US Department of Agriculture, in preliminary estimates, forecast a 23% drop to 9.3m acres in domestic sowings  this year of upland cotton - which typically accounts for all but about 200,000-300,000 acres of overall area, with the rest going to plantings of high-quality, extra long staple varieties.

A survey by the National Cotton Council showed overall cotton plantings dropping even further, by 27% to 9.01m acres, a 30-year low, as farmers switch to corn and soybeans, which offer better return prospects.

'Too pessimistic'

However, Commerzbank cautioned that such seeding forecasts were based on price assumptions which now looked outdated, given pullbacks in prices of corn, which dropped back below $7 a bushel  on Tuesday, and soybeans, while cotton prices have soared.

New York's benchmark March 2013 contract is up nearly 10% this year, including a fall in Tuesday's trading of 0.6% to 82.41 cents a pound, as of 09:45 local time (14:45 UK time).

The bank said: "Neither survey takes the price increase observed since mid-January into account, with the result that the acreage reduction will probably turn out to be somewhat smaller" than the USDA or National Cotton Council are forecasting.

OK – for now

Separately, Australia & New Zealand Bank, was reassuring over the cotton rally for now, saying that it was justified by evidence of restocking in many commodities, with improved economic confidence prompting "a scramble to rebuild global inventories".

"As financial market risk diminished from Europe and key economies showed signs of stabilising, the inventory cycle switched," ANZ senior ag economist Paul Deane said.

Furthermore, cotton prices were gaining support from rising values of rival polyester, up 5% over the last month, repeating seasonal firmness which typically lasts to March/April.

"This seasonal strength in synthetic fibre markets in coming months should provide some support to cotton prices short term," Mr Deane said.

"Even after recent price gains, cotton's valuation to synthetic fibres is undemanding."

'Real risk'

However, he questioned whether the revival in cotton prices was a "false dawn", as demand wanes in China, where price guarantee mechanisms aimed at supporting farmers are undermining the competitiveness of mills.

"Cotton prices will lack conviction post the first quarter, as the market faces downgrades to global cotton consumption," Mr Deane said.

"Emanating from existing cotton policies in China, current market forecasts for cotton consumption look too high.

"A real risk remains that global cotton stocks are progressively increased across the course of 2013 as Chinese cotton mill consumption and imports underwhelm."

Price outlook

New York December cotton futures, which closed the last session at a nine-month high, stood 0.7% lower at 83.26 cents a pound. 

The USDA, in its initial projections for 2013-14, forecast farmgate prices averaging 68.0 cents a pound.

"These USDA projections make current forward prices look very attractive," said Luke Mathews at Commonwealth Bank of Australia.