A bullish supply and demand report, coupled with a strong U.S. export sales report, provided plenty of fuel to an already strong cotton market this week and allowed cotton futures prices to continue their rally. USDA's August estimates finally confirmed what traders and analysts had been suspecting for some time; that cotton inventories were much tighter than previous reports had indicated.

USDA lowered its estimate of world beginning stocks for the 2010-11 marketing year to 47.58 millionbales, down 3.41 million from the July report. The largest reductions were noted in China, India, Pakistan and Brazil. One analyst stated the lower estimate of beginning stocks in China was "a step in the right direction," but the number still may be overstated by three to four million bales.

The department raised its estimate for world production to 116.85 million bales, up 830,000 from its July report. Increases were noted in India, Pakistan and the United States. However, world mill use was projected at 120.87 million bales, thus 2010- 11 will be the fifth consecutive year when world consumption will outpace production. World ending stocks are now predicted to be 45.6 million bales, approximately 4.5 months of mill use and the lowest stocks-to-use ratio since 1994-95.

One analyst for a large international cotton trader told a reporter the supply situation is "very tight," and it could be maintained for sometime. He also stated if demand remains as strong as it has been, the market could see historically high prices.

Traders were somewhat surprised by an increase of 200,000 bales in the U.S. beginning stocks estimate. USDA pegged the stocks at 3.1 million bales due to a change in exports for 2009-10. The department also raised its estimate of the U.S. crop to 18.53 million bales, an increase of230,000 from the previous month's report. Likewise, U.S. exports were boosted by 700,000 bales from the previous month to an estimated 15 million, and ending stocks were projected to be 3.2 million bales at the end of the marketing year.

The Texas cotton crop was estimated at 8.8 million bales based on an average yield of 768 pounds per acre and an abandonment rate of 3.5 percent. Production for the state's Northern and Southern High Plains was estimated at 5.98 million bales, and the Northern and Southern Rolling Plains was pegged at 1.21 million bales.

Weather conditions in West Texas were mostly ideal this week as warm temperatures prevailed, allowing the region's cotton crop to flourish. Scattered showers in some areas also added to already adequate soil moisture levels. Hot and dry weather in South Texas allowed field work to continue in areas where harvest is about to begin.

Drought conditions along with excessive heat remained throughout the Delta region ofthe U.S. Cotton Belt. Northern Louisiana is in desperate need of pre-cipitation. Meanwhile, California's San Joaquin Valley was enjoying excellent growing conditions.

USDA also reported net export sales ofU.S. cotton for the 2010-11 marketing year totaled 341,800 bales in the week ended August 5. Featured buyers were Bangladesh, Pakistan and Turkey. The department also reported export shipments on July 31, the final day of the 2009-10 marketing year, were 99,600 bales, bringing accumulated shipments of all cotton statistical bales to 12.2 million bales. Export shipments for the August 1-5 period totaled 178,800 bales. China, Mexico and Turkey were the top three destinations.