Gary Adams, vice president of economics and policy analysis, National Cotton Council, said China continues to be the lead bull in the price charge. “While China is the largest producer, largest processor and largest importer of cotton in the world, they are also the biggest area of uncertainty. We don’t have a good handle on exactly what the stocks situation is in China. It’s got to be a very tight situation.

“What we do know is that over the last 15 months, China has been aggressively auctioning cotton from its state reserves, somewhere around 16 million bales. You have to think this has brought stock levels down tremendously.”

Adams noted that USDA’s significant reduction in projected mill use in China is an indication that high prices are starting to affect demand. “The numbers we hear certainly suggest that mill use is slowing. That’s one thing we really need to watch. If cotton prices are higher relative to polyester prices, can we sustain demand at this level?”

Export restrictions by India are also fueling higher prices, according to Adams. “This is also adding to the price levels we’re seeing and to uncertainty in the market as well. There is some thought in the trade that the India crop is slightly larger than the 26 million bales the USDA is currently estimated.”

Meanwhile, Pakistan’s cotton crop “is not as large as originally stated due to effects from flooding,” Adams said.

It all makes for a bullish environment, according to Adams. “It’s also part of the reason why we’re seeing U.S. export commitments and shipments through October just shy of 12 million bales, a level that is unheard of for this early in the marketing year. The highest we’ve been in the past is roughly 8 million bales.”

Carl Anderson, professor emeritus, Texas A&M University, says there continues to be a wide gap between foreign use and foreign production of about 20 million bales, which has provided plenty of export potential for U.S. cotton. But Anderson warns marketers about the impact of very strong price signals.

“If we have a 10 percent increase in world cotton production and a slight decrease in use, we could play catch up on the supply, stocks and carryover very quickly. We have to be careful in a market like this. When you can see a limit up and a limit down in one day, it’s unusual. So don’t get too optimistic and wait another day to see what the market is going to do.”

Anderson has heard that Chinese mills are moving toward more polyester in their blends. “That’s why I’m prepared for a 2 percent reduction in world demand for cotton.”