Cotton futures on the Intercontinental Exchange (ICE) started the week off with a bang as prices rallied to the highest levels in 15 months, stretching all the way back to June, 2008. By Thursday, the market had fallen as the U.S. dollar bounced higher and pulled commodities prices lower.

“Despite Thursday’s lower close, the cotton market remains underpinned by the improving economy and demand prospects, the tightening of the global balance sheet, and a lack of hedging pressure as growers either have fixed or are holding off selling remaining supplies in the face of rising prices,” an analyst explained.

Interestingly, the steady stair step manner in which the cotton market has traded as of late seems to be beneficial for mills despite the increased prices as they are having some success passing much of the increase in raw material prices on to customers. It is rumored that mills in Turkey, India, and China now are operating with positive returns.

“Can it be the market has found a soft spot where both buyers and sellers are reasonably content? The scenario doesn’t occur often, but appears to be where we are right now,” a trader commented.

Meanwhile, USDA’s weekly export report was better than generally expected. The data showed good activity with net export sales of U.S. cotton totaling 219,200 bales in the week ended Dec. 10, down 18 percent from the previous week and five percent from the four-week average. Major buyers included China, Turkey, and Pakistan. Net sales of 2,600 bales for delivery in 2010-11 were for Colombia.

Export shipments continue to generally lag but were better than the previous week with a total of 126,700 bales. Primary destinations were Mexico, China, and Turkey. The lag in shipments due to the lateness of the crop may continue a bit longer while cotton makes its way into the system. As it stands now, the U.S. will need to average weekly shipments of 226,196 bales per week to hit USDA’s current 11 million bale export target for the year. However, some analysts are optimistic about cotton consumption at the beginning of 2010.

“The global cotton supply is declining, and global demand is picking up,” a trader said. “I’m fairly certain we’ll see the market recover significantly into 2010.”

World cotton production in 2009-10 is expected to come in at nearly 103 million bales, significantly lower than the 114.5 million bales of consumption anticipated, according to USDA figures. Outlooks for lower production in India and the U.S. are met with bullish demand ideas that follow a world recovery.

On the spot cotton scene, Texas, Oklahoma, and Kansas cotton producers sold 52,895 bales online in the week ended Dec. 17 compared to 24,228 bales the previous week. Average prices received by producers ranged from 65.47 to 68.52 cents per pound.

As harvest is coming to a close, rain fell on some of the nation’s cotton producing areas this week. Parts of Alabama and Georgia received significant rainfall, and the standing water coupled with cool temperatures will continue to slow the harvest there.

Heavy rainfall was reported in South Texas where more than two inches of precipitation fell in some areas. Soil conditions in the region will benefit from the moisture as the area has been experiencing an extended drought. Cotton harvesting elsewhere in Texas resumed this week as West and Central Texas growing areas experienced clear, mild weather conditions allowing the harvest to progress.