(Adds report details, market comment; updates prices)
NEW YORK - Cotton futures pared gains from 3-1/2-month highs to trade little changed on Wednesday after the U.S. Department of Agriculture (USDA) lowered its forecasts for U.S. exports and global consumption in its monthly supply and demand report.
March cotton on ICE Futures U.S. was up 0.01 cent at 64.45 cents a lb at 12:47 p.m. EST (1747 GMT) after trading as high as 65.23 cents a lb, the highest level since Aug. 24, before the release of the report.
The declines came as the USDA slashed its outlook for global demand to 111.39 million 480-lb bales at the end of the 2015/16 crop year in July, down from 111.59 million in its November forecast, driven by a 500,000 bale drop in its expectations for demand in top-consumer China.
That corresponded with a drop in its forecast for exports from the United States, the world's leading exporter, to 10 million bales, down from 10.2 million last month. That would be the lowest level since the 2000/2001 crop year.
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The slightly weaker demand picture contributed to "a void of buying" after the report's release, as speculators and merchants had already covered many of their short positions before the report's release, said Peter Egli, director of risk management at British merchant Plexus Cotton.
Still, the USDA also slashed its forecast for U.S. output to 13.03 million bales, down from 13.28 million last month, driven by declines in North and South Carolina, where Hurricane Joaquin ravaged crops in October.
That contributed to a drop in its world production outlook to 103.71 million bales, down from 105.63 million last month. USDA expectations for global inventories dropped to 104.39 million bales from 106.09 million, while it said U.S. inventories would fall to 3 million bales, down from a forecast of 3.1 million last month.
Those bullish factors limited the fiber's losses and helped it bounce back after turning negative, Egli said.
"At the lower levels the buying started coming back in," Egli said.
