By Julie Wernau

Cotton prices slipped for the third straight session on Tuesday, after a better-than-expected U.S. supply report, erasing a month of gains.

Cotton for December, the most active contract, ended down 0.4% at 68.60 cents a pound on the ICE Futures U.S. exchange, its lowest close since July 11. At one point the contract fell below 67 cents but manage to retrace those sharper losses before the close.

While the USDA slightly raised its production estimate for U.S. cotton last week, increasing U.S. stock levels, Commerzbank said it sees no reason for the price slide, as the U.S. government's world estimates for cotton were reduced by approximately 200,000 tons, increasing the estimated supply deficit.

Cotton production in the U.S. is up over last year but down from two years ago, with approximately 48% of the U.S. crop rated in good or excellent condition as of the week ended Aug. 14 versus 55% last year. Still, traders say they expect improvement in crop progress as Western Texas, which had been hit by heat and drought, is expected to see increasing rains over the next few weeks.

Texas is the largest U.S. cotton producer.