He said China cotton stocks may be lower than USDA estimates.

U.S. stocks have been whittled down over the past three years. Concerns over the China stocks and Pakistan’s 2010 crop also contribute to optimism.

Adams said a 10 million-bale U.S. cotton stock level in 2007 has been trimmed to 3 million coming out of 2009. “We are in a much different position in 2010. Warehouses may not be completely empty but those 3 million bales are spoken for.”

He said 480,000 bales remain in the marketing loan and about 19,000 are certificated, down from 1 million bales, and “one of the lowest levels on record. But we could see some erratic behavior by October.”

He said the low stocks cannot be made up soon. “It will take three to three-and-a-half months for the Northern Hemisphere 2010 crop to move into the market,” he said. “So we have a tight market going into 2010 harvest.”

And there may not be enough production to fill the gap. Recent flooding in Pakistan could reduce the world’s fourth largest cotton producer’s crop by as much as 30 percent. “Pakistan is a net importer of cotton so there is the potential for Pakistan to import more cotton.”

He said India will see a substantial increase in production but their export activity is a question. Currently, India has an export ban, which followed an export tax. “We have questions about what India will do. If they are in the market they will be competitive,” Adams said. India typically undercuts U.S. cotton prices.

“But how aggressive with they be? The USDA assumption is they will resume exports October 1 without an export tax.”