Cotton supplies in the United States next year will be smaller than previously forecast because of the increasing prices and larger-than-expected purchases in China, a government report in Washington revealed.

Inventories on July 31, 2017, the end of the current crop year, will be 4.3 million bales, 12 percent less than projected last September and below the lowest estimate, Bloomberg reported citing the US Department of Agriculture's report released on Wednesday. The average estimate was 4.87 million bales.

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Analysts at Rabobank International said the report is "bullish" for prices. The report revealed a huge global gap between consumption and production between 2016 and 2016.

The December delivery for cotton increased 2.7 percent to 68.97 cents per pound on ICE Futures U.S.

Meanwhile, the price of the most active cotton futures contract also jumped 9 percent in 2016 on predictions that demand will surpass the global crop, resulting to the reduction in inventories, Bloomberg reported.

The government has increased its forecast for Chinese consumption to 35.5 million bales from 35 million in September. Furthermore, for exports to the United States, it also raised its forecast to 12 million bales from 11.5 million last month, up from the 9.15 million it shipped last season. Of note, a bale weighs 480 pounds or 218 kilograms.

At a global level, the USDA reduced its estimate for world cotton stocks by 2.46 million bales to 87.35 million bales at the close of 2016 to 2017, a drop of over 24 million bales over two seasons.

Other than the cut of US inventory estimate, USDA also flagged upgrades to historical figures on China's consumption. China's recent increase of demand for cotton in the recent state auction process was a key factor in the revision, the Agrimoney reported.

"The sale of more than 12 million bales from China's recently completed reserved auctions amid rising domestic prices suggests the China mill demand was previously underestimates," the USDA said.

Tagschina, cotton, cotton supply, USDA, cotton supply chain