Volatility returned to cotton futures last week as traders sought to sort out implications of an immediate ban imposed by India on all cotton exports and subsequent plans for a ministerial review.

Benchmark May locked limit up on Monday and hit an 11-session high at 94.24 cents on follow-through buying on the ensuing opening, up 6.44 cents from the low of March 2, and then fell three sessions in a row to a low of 89.30 cents amid uncertainty about the outcome of the review.

May ended almost flat for the week ended Thursday, closing off 11 points 89.56 cents, while July eased 35 points to 90.70 cents and December gained 41 points to 91.29 cents. March expired eight points under May.

Cash trading slowed to 11,573 bales from the previous weekΆs 16,775 bales on The SeamΆs grower-to-business exchange. This was the lightest turnover since Thanksgiving week. The cotton changed hands at prices averaging 82.27 cents, down from 83.43 cents, reflecting a 13-point dip to 30.45 cents in premiums over loan repayment rates.

Government ministers of India were to review the export ban on Friday, the same day the USDA was to release its updated supply-demand estimates. They were expected to consider a proposal to allow shipment of outstanding sales of 2.5 million bales (of 170 kilos or 375 pounds).

The ban and the pending review overshadowed a USDA report that U.S. export sales during the week ended March 1 climbed to 117,900 running bales for delivery this season from the prior weekΆs 81,300 bales.

This boosted commitments to 11.055 million running bales, almost 104 percent of USDAΆs February estimate. New-crop sales rose to 20,900 bales from 2,300 the week before and raised 2012-13 bookings to 610,100.

Shipments hit a marketing year high of 392,800 bales to raise exports for the season to 5.518 million running bales, 52 percent of the estimate. Exports the last six reporting weeks have totaled 2.052 million bales, an average of 342,000 bales a week.

The action by India, the worldΆs second-largest cotton producer and exporter, was viewed initially as solidifying U.S. outstanding export commitments and prospects for shipments to exceed the USDA estimate.

A U.S. export increase, as some analysts view it, could hinge in part — aside from competitive pricing — on supply availability and any inkling on whether or not China might release a small portion of its reserves to augment imports if mill use improves this summer prior to new-crop movement.

With export commitments already about 386,500 statistical bales above the USDA estimate, not a lot of cotton would appear left for sale.

Counting 3.5 million bales estimated for domestic mill use, about 95 percent of the U.S. crop of 15.67 million bales has been committed. And beginning stocks were only 2.6 million bales, remindful of the memorable lows of 2.61 million in 1996-97 and 2.65 million in 1995-96.

A similar situation apparently has developed in India. Indian exports were 9.4 million bales (170 kilos or 7.3 million 480-pound bales). This is up from an export surplus quota of 8.4 million bales (6.56 million statistical bales) set in January and the USDA estimate of 6.25 million.

The government of India indicated the ban was to ensure steady supplies for the domestic textile industry, the countryΆs largest employer after agriculture. The government said the crop estimate had been cut 500,000 bales to 34 million.

ChinaΆs voracious appetite for its strategic reserves has been siphoning off a big chunk of the global seasonal surplus and created tightness in the worldΆs two largest cotton exporters.

IndiaΆs export registrations have been rumored as high as 12 million local bales (about 9.4 million 480-pound bales). Exports against registration certificates already issued also will not be allowed, the initial statement said.

Considering commitments for U.S. and Indian cottons, a trade analyst already had expected spinners to have to cover their needs in the second and third quarters mainly from Brazil, Argentina, Australia, Uzbekistan, Turkmenistan and various African origins.

While there wonΆt be any shortage of cotton, some of those origins are either expensive (Australia) or are playing hard to get (Uzbekistan), he said, adding that the Central Asian countries still sit on an estimated 6.5 million bales for sale.

India also banned exports in April 2010. It lifted that ban before the year ended but imposed strict licensing rules. Then it eliminated all cotton export controls last August but maintained mandatory registration.

The latest ban was not totally unexpected but the timing caught many non-commercial traders flat-footed just after the Commodity Futures Trading Commission reported they had reversed to net short cotton futures.

And in cotton futures with options, trend-following funds sold a net 7,424 lots to flip to net short 5,254 lots during the week ended Feb. 28 from net long 2,170 lots. Index funds sold 759 lots to trim their net longs to 66,027 lots, while traders with non-reportable positions bought a net 918 lots to raise theirs to 1,242 lots.

Commercials bought a net 7,265 lots, covering 7,108 shorts and adding 157 longs. This reduced their net short futures-options position to 62,014 lots.

Looking ahead, world cotton area is expected to contract 4 percent from last year to 34.5 million hectares (85.25 million acres) in 2012-13, says the International Cotton Advisory Committee.

Based on average yields, production could decline 5 percent to 25.73 million metric tons (118.18 million bales), ICAC said. Mill use is projected to increase 4 percent to 24.28 million tons (111.52 million bales), driven by improving economic growth and lower cotton prices.

Global stocks could expand 11 percent to a new all-time high of 14.54 million tons (66.79 million bales) on the heels of a rebound of 40 percent to 13.09 million tons (60.13 million bales) in 2011-12, ICAC said.

This would be the equivalent of a whopping 60 percent of mill use, the largest stocks-to-use ratio since the late 1990s.