Cotton futures on the intercontinental Exchange (ICE) rose to a two-month high this week on concerns that cotton supplies in the United States, the world's largest cotton exporter, will be tight until the autumn harvest. Outside markets also were led by wheat as it was limit-up on Thursday, dragging other grains, oilseeds and cotton along for the ride.

Traders differ on their views of where the cotton market now is headed. One analyst believes the market will "pull back" in the near future.

"The bulls still are indicating most of the recent run-up in the market is related to floods in China and Pakistan and the unknown as to how it will threaten world output," an analyst said. "Throw into the mix drier than normal weather from southeast Missouri to western Tennessee and northeastern Mississippi combined with strength from outside markets and the situation puts traders in an eager position to support a market pullback. The market still is pointing upward, but the pace of acceleration is slowing," he explained. Conversely, another industry observer feels the market will have continued support.

"I believe the market will be very well supported over the next two or three months, and after that we need to evaluate how the crops are turning out and how consumption looks going forward," he said. "The market currently has support from both a fundamental and a technical point of view. The pipeline is not just empty but is several million bales short, and it won't fill up again until the bulk of the crop has been harvested," he concluded.

According to USDA's July 9 supply/demand report, U.S. farmers will harvest 18.3 million bales in the 2010-11 crop season, up from a two-decade low of 12.2 million one year earlier. Global production is expected to jump 13 percent to 116 million bales, but the industry still believes the demand for cotton in the upcoming season will outweigh the supply.

Meanwhile, U.S. export sales continued at a relatively strong pace considering that prices had risen last week, and merchants were reluctant to offer additional cotton for nearby shipment. According to USDA's weekly report, during the week ended July 29 net export sales of 36,500 bales for delivery in 2009-10 were up noticeably from the previous week but down 54 percent from the four-week average. China, Indonesia, and Turkey were the week's top buyers. Net sales of 172,500 bales for delivery in 2010-11 were mainly for China, Thailand, and Mexico.

Export shipments of 355,900 bales were up 17 percent from the previous week and 23 percent from the four-week average. Primary destinations were China, Turkey, and Mexico. For the 2009-10 marketing year, sales have now reached 14.1 million bales, of which 12.2 million already have been shipped. With two days still to be added to the final tally for the marketing year, exports will be very close to the USDA projection of 12.25 million bales.

In other news, the U.S. cotton crop continues to thrive. Sixty-six percent of the developing U.S. crop was rated in good to excellent condition in the week ended Aug. 1, down slightly from 68 percent in that condition the week before, according to USDA data. In the same period, 69 percent of the crop was setting bolls, up from the 63 percent average.