U.S. cotton producers have watched in amazement as the world market set a record for prices and then broke that one as reduced stocks and growing demand created one of the most bullish scenarios for cotton ever.

Relatively low world stocks, limited supply, robust demand and a very low level of uncommitted cotton have caused an incredible run-up in prices since the beginning of the 2010-11 marketing year (August-July), according to the International Cotton Advisory Committee.

The Cotton Outlook A Index surged from 86 cents per pound on Aug. 2 to a record $1.86 per pound on Dec. 22, reported the ICAC in its monthly price assessment. The Cotlook A Index retreated to $1.72 cents per pound on Dec. 31 as textile mill buyers, traders and market speculators took a break at year’s end.

The season average Cotlook A Index reached $1.29 per pound, 66 percent higher than the 2009/10 average of 77.5 cents per pound. Similar trends were recorded at the ICE exchange in New York trading the cotton futures contract.

“It is estimated that as of end-December 2010, U.S. export commitments exceeded 3.1 million tons, or 90 percent of projected exports for the season,” the ICAC said. “The U.S. is the largest exporter of cotton, accounting for an estimated 41 percent of world exports in 2010/11.”

In 2010/11, exports by India, the world’s second largest exporter, were capped by the government below 1 million tons, all of which have been committed. Central Asian commitments are estimated at over 1 million tons or 85 percent of projected exports. Australia and Brazil are expanding production substantially, responding to record prices, but this cotton will not become physically available until April 2011.

Only about 10 percent of projected world trade of 8.3 million tons is still available for purchase at this relatively early stage of the season, according to estimates cited by the ICAC. “The scarce uncommitted supply may provide strong pressure on prices and cause increased volatility through the rest of the season.”

The average Cotlook A Index is well above the current ICAC 2010/11 season-average projection of $1.01 per pound. The ICAC Secretariat encourages an awareness of the confidence interval around each forecast, rather than an exclusive focus on the point estimate. It also acknowledges that in the current environment of volatility, the ICAC price model may be less relevant than in other seasons.