Last October, an Indian cotton broker told me that with the rapid increase in cotton prices, farmers took heavy loans to leverage their production. The sharp decline in price left them with a huge amount of debt. With this season's record harvest, Indian farmers need to flood foreign markets to compensate domestic loses. This, along with the Chinese request to lift the one-week-old export ban, forced the Indian government to go back on the only near-term price supporting force. If the foreign buyers (mainly Chinese) don't buy right now (and last Fall they seemed to have hoarded a whole lot of bales), the price is very likely to take another dip, especially in a deflationary environment coupled with a dollar bull market. If that happens, debt will weight on Indian farmers (extend that to any other cotton farmer who tried to leverage in 2010), and either they will refinance or they will lose a lot more than a season's harvest. Sadly, India is known for its problems related to agricultural businesses.
This leaves us with a production deleverage for the next season/couple of seasons that will coincide with the depletion of the current stock that will surely unbalance the supply and demand and price will have to move a lot higher. This rally will make cotton catch up with the rest of commodities as the liquidity leaves the banks and major players diversify.
Definitely, cotton will be the place to be... just not yet.