By Julie Wernau

Cotton prices took a dive Tuesday after the U.S. Department of Agriculture increased its projections for this year's stockpiles of cotton amid weak demand from China, the world's second-largest cotton importer.

Cotton for March delivery dropped 1.6% to end at 58.64 cents a pound, the lowest close for the most active contract since Jan. 26 on the ICE Futures U.S. exchange.

Rabobank called the change "neutral to bearish" and noted that world import demand is now slated to contract to its lowest level since the 2008 marketing year. The most pronounced impact is slated to be on U.S. trade flows, with the USDA lowering its export projections from the U.S. by 500,000 bales to 9.5 million bales.

Analysts surveyed by the Wall Street Journal had expected the USDA to lower projections to 9.93 million bales.

China, the second-largest importer of cotton, is sitting on the world's largest stockpile of cotton and has been attempting to sell it internally, importing less. At the same time, low oil prices have helped boost demand for competing petroleum-based synthetic fibers.

While consumption of cotton is still expected to outstrip demand, Rabobank said, world stockpiles of cotton "remain very comfortable."