By Carolyn Cui

Cotton prices plunged Tuesday after an industry group raised its projection for global output while lowering its demand forecast.

Prices declined 2% in the July cotton contract to settle at 63.06 cents a pound at the ICE Futures U.S. exchange, the biggest one-day drop in percentage terms since March 18.

At the same time, better weather conditions have helped increase the pace of cotton planting in the U.S. The weekly cotton planting report from the Agriculture Department showed 16% of the cotton planting complete, compared with 10% last week and 15% last year. Analysts expect the number to continue to rise in the coming week, as weather improves in the Mississippi River Delta area.

"The fundamental landscape is taking a negative turn of late with growing optimism over soil moisture in Texas fueling prospects for a good crop," wrote the Chicago-based Hightower Report.

Adding to the concerns, China, the world's largest cotton consumer, began to auction cotton from its reserves Tuesday, which will run through the end of August. The daily volume will be capped at 50,000 tons and a price floor will be set weekly, according to the ICAC. China's cotton reserve sales are likely to reduce imports by the country, a negative factor for global cotton prices.