China, meanwhile, is in a “pickle,” says Johnson. “They keep making less cotton, so they have to turn to the world market. At the same time, they need to keep growing food crops to feed the people. Over the past 10 years or so, China has been a net importer of some degree. They make more cotton and consume more cotton than any other country.”

China’s demand for cotton and India’s ability to export will dictate how much the U.S. exports, she says.

The current rally in the U.S. cotton market has certainly created interest as far as plantings for 2011, says Johnson. Even with competition from soybeans and corn, she predicts a minimum of 11.6 million acres next year, or about 550,000 acres above 2010. She sees increases in all regions of the Cotton Belt, including a jump of about 200,000 acres in the Southeast.

Rapidly rising cotton prices eventually will weigh on consumption in advanced countries and ultimately in advancing countries, she says, and there will be a reduced cotton share in all fiber consumption because synthetics are cheaper.

“The planted area in the Southern Hemisphere countries will increase immediately and to a lesser degree in the Northern Hemisphere next spring, but food security concerns will reduce the impact of $1 cotton,” says Johnson. “The price of cotton is likely to swing back in the other direction more rapidly — to the downside — given the size of this rally.”

Another impact of rapidly rising cotton prices is that mills will change their “just in time” approach to inventory levels, she adds.

Significant harvest progress will move cotton into the pipeline and calm mills’ worries and buying appetite, she says. “India’s larger crop and how quickly they move towards export registrations/shipments also will soothe mills’ nerves and allow additional coverage, but at lower prices in the next two quarters. The combination of these two events will help pull prices back into the low 90s/mid-80s.”

Heavy forward coverage by mills could lead to less buying in the fourth quarter and a larger Southern Hemisphere crop will help bridge needs until next fall, says Johnson. “Assuming the gap between the world crop and consumption narrows, prices should move into the low 80s/mid70s by summer and probably lower by next fall if global production exceeds usage.”