U.S. cotton stocks will reach their lowest level in three years by the end of the 2013/14 crop year, the U.S. Department of Agriculture (USDA) said, as it reduced its U.S. production forecast to below industry expectations.
The reduced forecast comes as global supplies outside of China have been tightening on heavy demand for imported cotton headed to the world's top textile market.
The USDA also lowered its forecast for global inventories for the crop year through July 2014, though that number would still represent a record level and surpass industry expectations.
The United States will hold 2.6 million 480-lb bales of cotton by the end of July 2014, the USDA said in its monthly report. That would be the lowest level since the 2010/11 crop year.
The top exporter will produce 13.5 million bales of cotton in the upcoming crop year, the USDA said on Wednesday, lowering its May forecast of 14 million bales.
That figure is below the median industry forecast of almost 14 million bales, based on a poll of cooperatives, traders and analysts.
"The U.S. numbers, in particular new crop, are friendly" if not bullish, said Sharon Johnson, a cotton specialist with Knight Futures.
Global inventories will reach a record of 92.49 million bales next year, though that was slightly reduced from the USDA's May forecast of 92.74 million bales.
The government's carryover forecast outstrips industry expectations of 88.9 million bales.
More than two-thirds of the global carryover is expected to become part of China's stocks, where inventories will total 58.93 million bales by the end of July 2014, the USDA said.
Beijing began a stockpiling program in 2011, paying above global prices to support farmers.
The country has recently said it is rethinking that policy, as China's textile mills are struggling due to high domestic fiber prices.
Cotton futures extended gains following the USDA report.