Cotton prices may be kept within a range dictated to the downside by the fibre's competitive with oil-based alternatives, but to the upside by huge supplies, for which the ICAC raised 2012-13 forecasts.
Cotton prices are being provided with "somewhat of a floor" by the late monsoon rains which have raised questions over production in India, the second-ranked exporter, and by the value of man-made fibres such as polyester, National Australia Bank said.
"The cotton-to-synthetics ratio is now neutral meaning that any further falls in cotton prices could see a shift away from synthetics towards cotton," NAB agribusiness economist Michael Creed said.
Furthermore, further ahead, the run-up in corn and soybean prices to record highs "bodes well" for cotton values, in forcing the fibre to offer better returns if growers are not to switch crops when the next sowing season comes round.
Weighing on prices
However, the prospect for higher prices was "decidedly weak" given the prospect of an increase in the newly-started 2012-13 season of already-generous world inventories, and without the Chinese stocks rebuild to support values as it did last season.
Separately, the International Cotton Advisory Committee (ICAC) trimmed by 100,000 tonnes to 2.6m tonnes its forecast for Chinese cotton imports in 2012-13 - half those of 2011-12.
|ICAC word cotton forecasts 2012-13, change on last and (year on year)|
Production: 24.74m tonnes, -130,000 tonnes, (-8.7%)
Consumption: 23.17m tonnes, -360,000 tonnes, (+2.0%)
Imports: 7.50m tonnes, -840,000 tonnes, (-19.6%)
Exports: 7.50m tonnes, -60,000 tonnes, (-19.7%)
Year-end stocks: 15.19m tonnes, +70,000 tonnes, (+11.5%)
Furthermore, the soft macroeconomic environment was "unlikely to provide any support to prices" for now through boosting global demand for cotton, especially in Western countries, Mr Creed said.
"The price outlook remains quite subdued when looking at market fundamentals," he said.
"The global stocks situation has become increasingly comfortable as high global prices evident through 2010-11 appear to have done their job in inducing a production response.
"Any upside to prices in the medium term is very likely to be limited given the simple fact that global stocks are more than adequate while risks to consumption are very much to the downside."
NAB forecast the Cotlook A index of physical cotton prices averaging 81 cents a pound over 2012-13, in line with the current price of 81.65 cents a pound.
The Cotlook A averaged 102 cents pound in the first 11 months of 2011-12, and 164 cents a pound the season before, according to the ICAC.
The ICAC, balancing lower Chinese imports against ideas of slight increases elsewhere, downgraded its estimate for world buy-ins in 2012-13 by 840,000 tonnes to 7.5m tonnes, a decline of 20% year on year.
The estimate for world consumption was cut by 360,000 tonnes to 23.2m tonnes, "as the rate of global economic growth is expected to remain slow".
The revisions left the stocks-to-use ratio – a measure of the fibre's availability, and therefore its pricing power - at 65.6%, the highest since the 1980s.
"The projected accumulation of cotton stocks will weigh on international cotton prices in 2012-13," the ICAC said.
"But the extent of this downward pressure will depend in large part on how the Chinese national reserve is handled."
Cotton for December closed 0.2% higher at 70.97 cents a pound in New York.