A surprising cut in U.S. ending stocks for 2010-11 and a steep reduction in world stocks linked to prior-year revisions powered cotton futures to new seasonal highs last week.

Most-active December surged up the 300-point daily limit to 83.90 cents on the heels of USDA’s supply-demand data and closed at 83.55 cents, up 349 points for the week ended Thursday. It closed up 1,059 points or 14.5 percent from its July low.

Spot October gained 255 points for the week to 86.75 cents and March advanced 377 points to 81.77 cents.

Selling late Wednesday and again just prior to release of the USDA report Thursday boomeranged as the benchmark December contract traded within a whopping 421-point daily range and closed near its high.

In its U.S. estimates, USDA cut ending stocks by 300,000 bales — an increase had been expected — from the July forecast to 3.2 million, boosted the crop 234,000 bales to 18.53 million, raised exports 700,000 bales to 15 million and left domestic mill use at 3.4 million bales.

Higher exports tied to stronger foreign import demand are expected to counter a 200,000-bale hike to 3.1 million in beginning stocks plus the 1.3 percent increase in the crop estimate.

The crop forecast reflected a small abandonment of 280,000 acres or 2.6 percent, down from 510,000 acres or 4.7 percent estimated last month, and a yield of 837 pounds, down from 845 pounds.

The stocks-to-use ratio is expected to fall to 17.4 percent from 20.1 percent last season. This would be the lowest since 2003-04.

Upland cotton in top-producing Texas is projected at an all-time high of 8.8 million bales, 90 percent more than last year’s output and well above the prior record of 8.44 million bales in 2005. Abandoned acres are estimated at 3.5 percent and yields at 768 pounds. Harvested acreage is forecast at 5.5 million acres, up 57 percent from 2009.

The Texas High Plains crop is pegged at a record 5.98 million bales, up 71 percent from last year’s output. This area is expected to account for 68 percent of the Texas crop and 39 percent of the U.S. output.

Abandonment is estimated at 135,000 acres or 3.6 percent, down from 25.6 percent last year, with yields projected at 788 pounds, third highest on record behind 864 pounds in 2007 and 796 pounds in 2005.

In its world estimates, USDA reduced beginning stocks 3.41 million bales or 6.7 percent from its July forecast to 47.58 million and slashed ending stocks by 4.3 million bales or 8.6 percent to 45.61 million.

World production prospects increased 830,000 bales to 116.85 million and consumption expanded 1.17 million bales to 120.87 million, widening the global crop shortfall to 4.02 million bales. Consumption, up 2.7 percent from increased mill use last season, is forecast within 2.93 million bales of the all-time high in 2006-07.

The gap between foreign production and foreign mill use widened to 19.05 million bales from 18.58 million foreseen last month. This is the second largest ever, exceeded only by 24.35 million bales last season.

The USDA reduced its stocks estimates for China, which long have been regarded as overstated. It cut beginning stocks 1.21 million bales to 19.28 million, upped mill use a million bales to 50 million, hiked imports 850,000 bales to 12.5 million and lowered ending stocks 1.86 million bales to 16.76 million. The crop estimate remained at 33 million bales.

Beginning stocks also were reduced for India, Pakistan, Brazil and Australia. These were partially offset by the increase in the United States, where 2009-10 exports were reduced 225,000 bales to 12 million.

Production increases, in addition to the hike in the United States, were seen for Turkey and Australia, while estimated flood losses reduced the crop in Pakistan by 700,000 bales to 9.5 million.

China’s import hike accounted for about three-fourths of the 1.2-million-bale increase to 38.25 million in world imports. Exports rose mainly in India, up 600,000 bales to 6.5 million, and the United States.

The new estimates included historical adjustments in supply and use for India and Pakistan. China’s 2009-10 consumption rose by a million bales to 48.5 million on recent indications of higher offtake.

Meanwhile, China’s long-awaited state reserves auctions began, drawing strong prices and aggressive mill participation.

A total of 600,000 metric tons (2.76 million bales) were to be auctioned on the China National Cotton Exchange. Participants are limited to mills, which can buy only to meet their own needs. Reselling is prohibited. Violators face stiff penalties, including bans from participating in state reserves auctions for three years.

While the government sales apparently were intended to temper prices and could slow China’s import buying in the near-term, some analysts had said that growing demand, a big crop shortfall and a likely need to replenish reserves could exert upward price pressure in the longer term.

Separately, U.S. all-cotton export sales for the week ended Aug. 5 got off to a brisk marketing year start, topping expectations by a wide margin at 341,800 running bales for 2010 and 27,100 bales for 2011-12,

On a different note, the exchange’s spec-hedge report showed the specs raised their net long cotton futures position by six percentage points to 9.6 percent of the open interest during the week ended Aug. 5.

Speculators owned 44 percent of the longs, up 3.9 points, and 34.4 percent of the shorts, down 2.1 points. They increased their longs by 13,173 lots to 82,351 and their shorts by 1,451 lots to 64,429. This boosted their net longs by 6,200 lots to 17,922.

Commercials added 13,351 short hedges and 1,629 long hedges. This lifted their shorts to 122,824 lots and their longs to 104,902 lots. Open interest jumped 14,802 lots to 187,253 and expanded further to 193,543 lots at midweek, up 39,907 lots or 26 percent from mid-July.