U.S. cotton farmers who normally look to New York cotton futures for market signals may be barking up the wrong tree this year.

While New York futures will be the benchmark by which U.S. merchants set local cash prices, global cotton trade and prices may be affected to a large extent by government policies in China and to a lesser extent by policies in India.

That’s the assessment from the monthly update prepared by the International Cotton Advisory Committee, an organization of 44 cotton producing and consuming countries, headquartered in Washington, D.C.

On the one hand, the ICAC says, China accumulated more than 3 million tons of domestic cotton and at least 1 million tons of foreign cotton in its national reserve during the first eight months of the 2011-12 marketing year.

“This accumulation boosted imports by China, which are now forecast at 4.2 million tons or up by 61 percent from 2010-11. While the purchases supported both domestic and international prices so far, sales from the reserve could reduce Chinese imports and depress world cotton prices in the future.”

On the other hand, the Indian government imposed a sudden ban on new exports starting on March 5, 2012.

The impact of India’s export ban on international cotton prices was limited in March, with the Cotton Outlook A Index remaining around $1.00 per pound. However, the longer the ban remains in place, the greater its upward impact on world cotton prices could be.

“Global cotton trade is expected to rise by 9 percent to 8.4 million tons in 2011-12, driven by near record imports from China,” the ICAC said. “With global production exceeding global consumption in 2011-12, global stocks are expected to rebound by 41 percent to 13.1 million tons in 2011-12.

“However, two thirds of the increase in global stocks is taking place in China, as a result of their stockpiling policy. If we subtract the expected amount in the China national reserve from global stocks, the remaining ‘free’ stocks may increase by only 5 percent to 9.4 million tons this season. The size of the Chinese national reserve creates significant uncertainty for the global cotton market for months and maybe years to come.