ABARE, which is holding its annual Outlook conference in Canberra today, is forecasting rising prices in the medium term beyond 2008-09 when consumption will fall in response to the worldwide economic downturn.

However, ABARE says ongoing productivity improvements in cotton production will result in some decline in cotton prices in constant (2008-09) dollar terms from 2010-11.

ABARE expected cotton to remain the most profitable irrigated crop in its traditional growing areas in Australia over the medium term.

As a result, average cotton production was redicted to increase to about 719,000 tonnes by 2013-14.

The cotton indicator price was forecast to average US65 cents a pound in 2008-09, 11pc less than the previous year, despite a large decline in world production in 2008-09 and the expectation of only a modest rebound in world cotton production in 2009-10.

"The cotton indicator price declined from about US78c a pound in early September last year to US51.8c a pound on November 21, 2008, but has since recovered to US54c a pound in mid-February, 2009," ABARE said in its latest quarterly commodity report released today.

ABARE said prices were expected to continue their recovery as buyer confidence returned which, coupled with the current tight supply-demand balance, should push the cotton indicator price to an average of about US72c a pound in 2009-10.

* More reports from Outlook '09 in this week's Rural Press weekly agricultural newspapers.