The combination of strong ongoing demand, upbeat comments at a USDA forum, strength in equities and anticipation of a good export sales report enabled cotton futures on the Intercontinental Exchange (ICE) to close sharply higher Thursday.

Although Thursday’s run ended with the ICE’s highest close since the last week of September 2008, trading was almost bleak the day before.

“With the backdrop of a raging U.S. dollar and the rest of the commodity screen bleeding blood red, the cotton market spent most of the session Wednesday in positive territory, which was no small feat unto itself,” a cotton market watcher said.

Several observers said Thursday’s higher market sentiment was helped by presentations at USDA’s annual Agricultural Outlook Forum. In particular, a speech by USDA Under Secretary Jim Miller that explained tight world supplies now are improving prospects for U.S. cotton exports was highly supportive to the market.

“Additionally, export sales reports have fluctuated back and forth but overall have been pretty strong,” an analyst said. “Meanwhile, recent economic data has shown signs of improvement so you’ve got to think the downside of the cotton market is somewhat limited.”

Other market observers have characterized recent cotton demand as “ravenous” and said mills had run low on cotton supplies and were replenishing the pipeline or building inventory.

As if to prove a point, USDA reported net export sales of U.S. cotton totaled a healthy 360,500 bales for the week ended Feb. 11. Featured buyers were China, Turkey, and Mexico. Net sales reductions of 32,900 bales for delivery in 2010-1l resulted as purchases from Thailand were more than offset by cancellations from Mexico. As it stands now, the U.S. needs to average weekly sales of 174,665 bales, allowing for a five-year carryover, to reach USDA’s current 12 million bale estimate.

Export shipments of 206,800 bales were up 19 percent from the previous week and 11 percent from the four-week average. Major destinations were China, Turkey, and Vietnam.

“Demand for cotton has been strong in 2009-10, and as we have progressed further into the season there now are fewer bales left from which to choose,” an observer said. “Mills that wait to lock up supply of the exact type of cotton they need will have to either pay a very high price for being selective, or will have to settle for something of lesser quality to spin,” he concluded.

However, not all of the mills’ reluctance is due to the “waiting game.” According to analysts, some of the mill buying hesitance is due to the lack of bank lending. Without adequate borrowing liquidity, it is extremely difficult for mills and merchants to lock in on any supplies more than 90 days forward.

Meanwhile, as cotton supplies dwindle, sales were only slightly lower on the spot cotton market as growers in Texas, Oklahoma, and Kansas sold 38,473 bales online in the week ended Feb. 18 compared to the previous week when 39,137 bales were traded. Prices received by producers ranged from 62.22 to70.54 cents per pound versus 54.51 to 66.19 cents per pound one week before.

“Given the numbers in hand, you really don’t have to even consider the supply side of the balance sheet, there is only so much cotton in this world left to get us through to the new crop, regardless of how big next season’s production will be,” an analyst said.