Cotton prices, supply and demand estimates are largely unchanged from last month according to the latest data to come out of the US - although there are mounting concerns that uncertainty in Europe and a possible double-dip recession will start to weigh on future purchases of the fibre.

While the US Department of Agriculture (USDA) has lowered its forecast for the US cotton harvest by 2% to 16.3bn bales in the 2011/12 season, which began on 1 August, higher output in China, India and Pakistan is set to put world production at an estimated 123.9m bales.

In its monthly World Agricultural Supply and Demand Estimates report, the USDA cut US production estimates by 308,000 bales due to falls in Texas and the south east of the country. Argentinian harvest expectations were down by 150,000 bales, but Turkey is seen rising by 200,000 bales. 

In terms of world consumption, lower demand from both Mexico and Thailand is likely to result in a drop of 102,000 bales, from 114.4m to 114.3m, forecasts show. And estimated world ending stocks are put at 54.8m, marginally higher than earlier estimates of 55.0m. 

Global trade, meanwhile, is virtually unchanged at 36.5m bales.

In its Monthly Economic Letter, Cotton Incorporated notes that the current situation in Europe suggests the eurozone is headed for another recession and is likely to dampen the demand outlook for cotton, while other indicators point to sluggish growth in the US and slowing economic activity in China.

While the combination of weak global demand and a crop production surplus of 9.6m bales should keep prices from trending higher, there are other forces at work that could buoy cotton prices.

These include the move by the Chinese government to begin building up the country's cotton reserves, as well as a switch to planting other crops like corn and soybeans that are likely to attract a higher price.

At the moment, though cotton prices continue to trade in a general sideways pattern, Cotton Inc says.  New York December futures climbed as a high as 105 cents/lb before retreating to near 96 cents/lb.  And A Index values rose above 112 cents/lb but have since fallen to levels below 107 cents/lb.