On Wednesday the USDA provided us with their first detailed estimate for the 2011/12 season. For the first time in six years, the world is expected to produce more than it consumes, thereby reversing a trend of sharply declining stocks. Since the 2006/07 season global stocks have been reduced by nearly 20 million bales to just 42.5 million bales, which equal a little more than 4 months of global mills use. However, since the statistical snapshot is taken on July 31, most inventories will be nearly depleted by the time new crop comes off the field this fall.

The USDA forecasts world production at an all-time high of 124.7 million bales, which would surpass the record from 2006/07 by around 2.9 million bales. Since the US crop is expected to be more or less unchanged at 18.0 million bales, the rest of the world will have to produce a crop that is 10.2 million bales bigger than in the current season. The USDA believes that China will get to 33 million bales (7.185 million tons), while India will grow a record 27 million bales (34.6 million Indian bales). While this is certainly possible, a lot needs to go right in order to get there.

Eoin Treacy's view Cotton prices began to lose momentum in March following an impressive acceleration where they almost tripled. Prices have pulled back sharply over the last month and have now almost completed a reversion towards the 200-day MA which is a potential area of support. However, a clear upward dynamic would be required to confirm the return of demand in this area. Longer-term 100¢ was an area of resistance between 1973 and 2010 and could well act as a floor now that the inflation adjusted downtrend has been conclusively broken.