Cotton prices rose to their highest in nearly two years after forecasts of a 1m-bale rise in China's imports next season compounded a boost from greater-than-expected US export data.

China's cotton imports will rise to 10m bales in 2010-11 as global economic revival fuels demand for yarn and garments at a time of limited prospects for expanding domestic supplies, the US Department of Agriculture said.

"Cotton will have difficulty competing with alternative crops in some areas of China due to labour shortages, strong demand for crops such as fruits and vegetables, and government subsidies for grains," USDA said.

The forecast whetted the appetite of investors for a crop whose price has already jumped by 80% in New York over the last year.

"It's a friendly number," Terry Roggensack, the Hightower Report analyst told Agrimoney.com.

Booming exports 

Investors were also impressed by data showing US cotton export sales coming in some 100,000 bales above traders' expectations.

Exports were "still running ahead", even factoring in a rise of 1.0m bales to 12.0m bales the USDA made to last week to its 2009-10 shipments estimate.

"We have already reached 75.6% of the exports expected for the full season, higher than the five-year average of 68.4% we have normally got to by now," Mr Roggensack said.

He added: "Cotton has been attracting a lot of investment money. Pretty much everything that has come out since last week's report has been positive."

The comments echo those earlier on Friday from Sucden Financial France analyst William Adjaj, who attributed cotton's bull run to a "combination of strong ongoing demand, upbeat comments at a USDA forum [and] strength in equities", besides export hopes.

Cotton for March delivery closed up 2.4% at 78.79 cents a pound in New York, its highest finish since March 2008.

'A lot of ifs'

The USDA report also forecast a surge of 29% to 16.0m bales in US production for 2010-11, as higher prices tempt growers from other crops.

However, investors might be tempted to ignore this for now, given America's recent production record.

"That assumes the cotton does get planted, that there is not another year of poor soil moisture levels and that yields are normal. That's a lot of ifs," Mr Roggensack said.

"We have had a number of difficult years from the supplier's perspective."