The good news is that the world’s cotton production--largely driven by record-high prices--should increase by almost 9 percent in 2011/12, reaching the lofty total of 125 million bales. Much of the increase will come from major Southern Hemisphere exporters such as Brazil and Australia.

The bad news is that most of that cotton won’t be available until April. So, for the next three months, the world’s buyers--who have been scrambling to purchase any cotton they can find--will be forced to compete for the 10 percent of the 2010/11 crop that remains unsold (about 830,000 tonnes).|

As a result, the law of supply and demand will continue to cause unusual volatility in global cotton prices, at least for the next few months. In addition, inclement weather is always a threat to reduce output estimates, as seen by the tragic flooding in Queensland, Australia. Thousands of hectares have already been lost to the excessive rainfall, which could worsen in the short term and further tighten the global cotton supply.