* Trade divided on origin versus destination contract

* Industry met to discuss plan, ended without agreement

By Chris Prentice

NEW ORLEANS, May 13 (Reuters) - Discussions about the first global cotton futures contract have hit a roadblock in setting a new benchmark that could replace the existing century-old agreement on ICE Futures U.S., traders said.

Months after formal discussions began, traders are hung up on a key detail necessary to draft a new global contract: Whether to allow delivery of cotton against futures contracts in countries that produce it or those that use it.

Expanding the contract to accept fiber grown outside the United States for the first time is seen as necessary by its supporters to avoid the price distortions that have roiled the market in recent years.

But the origin versus destination debate is a major stumbling block. The extent of the impasse became apparent last week at the American Cotton Shippers Association conference in New Orleans (ACSA), traders familiar with the discussions said.

At least one formal meeting of a global contract committee within ACSA took place, but ended without clear agreement, they said.

The concept of a global contract has been around for several years. But late last year, the International Cotton Association finally set up a draft committee in reaction to pressure from traders following the record price volatility that has roiled farmers, merchants and textile mills over the past four years.

The new contract would be a better reflection of the global cotton market, traders said. With few other exchange options, players from around the world have to turn to the New York exchange to hedge their cotton business. But only U.S. cotton, which represents less than 15 percent of global output, is deliverable against the existing contract.

Discussions within the ICA and ACSA, which represent the world's major cotton merchants including Louis Dreyfus Corp , Cargill Inc and Ecom, have hit the same stumbling block over the draft specification.

A destination contract would include cost, insurance and freight to a country where textile mills are located, such as Malaysia, whereas the alternative origin contract point would be based on a producer country, such as Brazil or Australia.

"The devil is in the details," said one trader involved with formal discussions through the ICA. He noted that the committee is still trying to come up with a sample draft that could be presented to traders for further discussion.

In order to gain traction, major trading firms would have to support the venture and dissent is prevalent.

"Origin doesn't make sense. It's not where the cotton needs to be," said one trader familiar with the ACSA committee discussions, pointing to a destination such as Malaysia as a logical option.

The trade is far from agreed on the point.

"The problem with a destination is that there's no clear takers (of delivery). What happens if a mill's needs are filled? Then it's just for dumping," said another trader, who added he has been in discussions, but was not present at last week's meeting.

The cotton industry has been hit by massive volatility as the U.S. market swung between extreme shortages and oversupply. In 2010, concerns about a shortage after a bad drought wiped out crops in Texas, the country's largest growing state, contributed to a surge in prices to all-time highs above $2.20 per lb. Prices then sank almost as quickly as farmers increased output to cash in on the bonanza.

Supporters of the contract hope that increasing liquidity in the ICE contract would reduce the potential for wild gyrations.

On Friday, the U.S. Department of Agriculture forecast record global stocks for the 2013/14 season - a third consecutive record - but said the U.S. carryover would be below the 10-year average.

Even while the global market is awash with fiber, traders say the December contract, which represents the 2013/14 U.S. harvest, could be volatile if dry weather in Texas damages crops.

Traders believe exchanges would readily launch a new contract, but some cautioned that, without the support of large hedgers, it would not have enough liquidity to be successful.

"The worst thing that could happen would be to have two contracts that don't work," said another U.S. trader, adding he would not want a new contract to suck liquidity from the existing futures market and spur even more market gyrations.

The one thing traders seem to agree on is that a new contract is far from a done deal.

"It could be another year. Or five," said the first trader.