Cotton futures tumbled to a one-year low after US officials reduced expectations for this season's decline in world stocks, citing "sluggish demand" in China, whose imports will fall to their weakest in 13 years.

New York-traded cotton, for March delivery, dropped 2.3% at one point to hit 58.25 cents a pound, the weakest level for a spot contract since January last year.

The latest fall in prices – down more than 6% in a week - followed an upgrade of 1.2m bales, to 104.1m bales, by the US Department of Agriculture to its forecast for world stocks of the fibre at the close of 2015-16 – restoring the estimate to the second highest on record.

This revision in turn reflected weaker expectations for demand in China, the world's top cotton consumer, where mills continue to be hampered by domestic prices which are elevated by world standards, and in comparison with polyester, of which the country is the top producer.

'Worsening outlook'

"The worsening outlook for Chinese cotton use stems from low state reserve sales, continuing import restrictions, declining polyester prices, and a weakening outlook for Chinese economic activity," the USDA said.

"Consumption and imports [estimates] are reduced for China, based on continued sluggish demand."

Indeed, a 500,000-bale downgrade in the forecast for Chinese imports, to 5.0m bales in 2015-16, left the country third in the world rankings, behind Bangladesh and Vietnam.

Historically, China has been by far the biggest importer, with purchases in 2011-12 topping 24.5m bales, helped by a generous – and now reformed - farm subsidy system which left domestic prices well above international ones, so encouraging mills to buy abroad.

Too downbeat?

The USDA also lifted its estimate for domestic inventories at the close of 2015-16, by 500,000 bales to 3.6m bales, thanks to a bigger-than-expected cut to export hopes, to 9.5m bales.

The USDA flagged "continued sluggish export sales", which it attributed to "weaker demand in China and quality concerns regarding the US crop".

However, with a recent pick-up in the US trade performance, the extent of the 500,000-bale downgrade to the export forecast raised some doubts

Louis Rose at the Rose Report said that "overall, today's data are bearish.

"However… with the recent strong pace of US export sales, combined with the recent break in prices, the USDA's revised export projection may be viewed with some scepticism."

In the last week of January, the latest period for which data are available, export sales of upland cotton topped 251,000 running bales, and actual shipments hit a marketing year high of 233,500 running bales.