The rally in cotton prices ran into turbulence amid cautions of a "not bullish" outlook, with the surge in values seen prompting US growers to cut sowings far less than has been thought.

New York cotton futures for May delivery returned to positive territory, adding 0.1% to 90.96 cents a pound as of 09:00 local time (13:00 UK time), defending a 21% gain in the price of the fibre so far in 2013, as measured on spot contracts terms.

However, the new crop December contract, which entered March pretty much on level pegging with the May lot, dropped 0.5% to 87.97 cents a pound, extending its discount nearly to 3 cents a pound.

The contract's diverging fortunes followed caution from J Ganes Consulting, the analysis group headed by veteran soft commodities analyst Judith Ganes-Chase, that the rise in prices was boosting prospects for US production this year, and potentially leaving the country with "too much supply".

'On a limb'

While the National Cotton Council early last month pegged US cotton plantings this year at 9.0m acres, the lowest in 30 years, "actual plantings are certainly going to increase beyond this", the consultancy said.

Area would, "at a minimum", reach 10.0m acres, the level pencilled in by the US Department of Agriculture late in February, "but could even by closer to 10.5m acres".

However, mopping up this extra production requires China, the world's top importer, to continue its rapid rate of purchases.

"The domestic market is clearly on a limb, highly dependent on China not to change course and - as the market races higher and their reserve stocks mount - this seems an unlikely possibility.

"The US could find itself… left with too much supply. The situation is not bullish for 2013-14."

'Technical headwinds'

Other commentators urging caution over rising prices include Keith Brown, at US-based broker Keith Brown & Co, who noted a chart signal, in that the 89 cents-a-pound level was, for New York's December contract, the half-way point between a contract high set in June 2011 and low reached in June last year.

"That does not mean we are necessarily at the top. But it seems to me we will face some technical headwinds," he told Agrimoney.com.

Furthermore, there is some talk of China having purchased much of its state cotton stockpile at roughly 110 cents a pound.

"If the price gets to the region of 95-100 cents a pound, China might take the chance to offload some of its stocks," which might appear more attractive to domestic mills, once transport costs are factored in.