Mother Nature tried to compensate for over-planting, but did not succeed. Despite the worst drought in history in Texas, another flood in Pakistan, and poor late monsoon season performance in India, a record crop of more than 123 million bales is projected to be grown this year.

Worldwide, about an 11 million acre increase is expected for the 2011-2012 crop. The largest increase in 2011 came from the U.S. with 3,759,000 acres, followed closely by India with a 2,531,000 acre increase.

China by comparison had a 792,000 acre increase and Australia a 218,000 acre increase.

The expected crop production from the 2012 crop will add another 12-15 million bales to what could be an already high carry-over year. Much of the result of the increased production will depend on how aggressive China is in further building its cotton inventory.

Last year China paid about $1.18 a pound for domestic cotton, which made room for plenty of dollar a pound U.S.-grown cotton, Nicosia says.

For the 2012 crop, it’s hard to know what the market price will be, though it is clear demand for cotton products will not match the jump in production, he adds.

In response to a spike in demand for cotton products in 2008-2009, Chinese textile mills increased production, forcing China to sell 16.6 million bales of its reserve stocks to Chinese mills to satisfy demand.

By October of 2010, the Chinese cotton reserve had dwindled to less than 1.5 million bales. The shortage in cotton in China’s reserves coincided with the spring 2011 jump to $2 a pound cotton.

China reacted last spring by offering $1.18 per pound for Chinese-grown cotton for the reserve. When prices began trading on the international market at less than $1.18 a pound, China began purchasing cotton from other countries to build its reserves.

As of early 2012, the Chinese had already purchased more than 11 million bales and are expected to continue to build reserves to 15-18 million bales this year.

Nicosia says the 2012 world ending stock of cotton is an ‘abundant illusion.’ Of the 58 million or so bales in carryover stock, China’s state cotton reserve will hold nearly a third, he notes.

New crop cotton is arriving on the market this winter, but it’s not being accompanied by new demand.  

As cotton became scarce in 2011/12 prices had to move to over $2 per pound to ration the available supplies. It was hoped that with the arrival of fresh new crop supplies some of this demand would return. Instead poor business conditions exacerbated the situation.

Despite lower cotton prices, demand forecasts have continued to sink due to numerous macro-economic events. Consumption during 2011/12 is similar to 2008/09 at the trough of the global recession, Nicosia says.

USDA figures support the cotton industry leader’s contention about decreasing demand.

In May of 2011, world cotton consumption was trending at about 119 million bales. By January 2012 the same trend line had dipped to less than 110 million bales.

The 10 million bale drop in world demand for cotton is based on two factors, Nicosia says.