* World-ending stocks seen below 70 mln bales – Reuters poll
* Texas crop seen at 5.5 mln bales vs 3.5 mln yr ago – poll
NEW YORK, Aug 9 (Reuters) – Cotton futures eased slightly on Thursday ahead of the U.S. government’s keenly awaited monthly crop report on Friday, with market participants expecting record inventory this year even as concerns mount about crop damage in India and the United States, the world’s No. 2 and 3 producers.
After rising above 77 cents for the first time since mid-May, investors took profits late in the session, pushing prices back to near unchanged by the close.
The benchmark December cotton contract on ICE Futures U.S. settled at 75.95 cents per lb, down just 0.05 cent from Wednesday.
The 2012/13 season, which started on Aug. 1, hangs in the balance, as traders speculate whether China will release a portion of its massive 27-million-bale strategic stockpile.
Beijing may auction off a share of that stash, which accounts for almost half of the 2011/12 ending stocks, as it readies for another shopping spree during this marketing season.
“Everything I see points to Chinese government buying and releasing when they need it,” said Ron Lawson, managing director of logicadvisors.com.
Whatever secretive moves the authorities make behind the scenes, it is likely to prove decisive to global trade flows, particularly if India’s crop is damaged by the drought.
The chances of a prolonged dry spell rose on Thursday after the U.S. weather agency cautioned that the El Nino phenomenon, which caused India’s last drought, is almost certain to occur in the next two months and will last into 2013.
Indian authorities have already sounded the alarm on a potential drought – the first in three years – after the weak start to the vital monsoon rain season.
In the domestic market, the next two weeks will be crucial for farmers in Texas, the country’s largest-producing region, as blooming crops struggle without rain.
“It looks hot and thirsty,” said Jay Yates, risk specialist with Texas AgriLife Extension Service, standing in a field planted with cotton in Texas. “We had enough moisture to get things started, but less than an inch since.”
PRICED IN CUTS
Following the 10-percent jump in prices since the start of the month, the market may be expecting a larger cut to the USDA’s ending stock levels in Friday’s report than is realistic.
An informal poll by Reuters showed analysts, traders and academics expect global ending stocks in the 2012/13 season of 69 million bales.
That is still the highest since the government records began in 1960 and builds on the 66.7 million bales estimated for the end of the 2011/12 season.
But it is down 5 percent from USDA’s 72.4-million-bale forecast, largely due to expectations crop damage in India, for which the USDA is unlikely to have accounted yet.
The USDA’s output projection for India of 24 million bales, down from 26.5 million bales in the 2010/11 season, is too high, but may not come down yet, traders said.
Keith Flury, cotton analyst at Rabobank, pegged the eventual number in the low 20-million-bale area.
A dry spell in Texas, still recovering from last year’s drought which halved the crop size, has also forced analysts to reduce regional and national forecasts.
A poll of 10 analysts, traders and academics pegged U.S. output at 16.6 million bales, down from the USDA’s current estimate of 17 million, but up from the 15.57 million produced last year.
A third of that will come from Texas with output there seen at 5.5 million bales, the survey showed. That is almost two-thirds higher than the 3.5 million bales produced last year, but below historic averages of 6 million to 7 million bales.
(Reporting by Josephine Mason; Editing by Bob Burgdorfer)