Investors wishing to gauge prospects for cotton prices may be better looking at share markets rather than crop supply and demand fundamentals for now.

Commonwealth Bank of Australia, noting the rise in cotton prices faster than it expected, has highlighted rising hopes for economic revival which have also driven stocks higher.

"Equity markets, like commodity markets, are reacting to sentiment and confidence in the economy," CBA commodity strategist Luke Matthews said.

"Participants in the cotton market have viewed US equity markets as a reasonable indicator of global economic growth prospects and therefore an indicator of potential discretionary apparel demand – a significant influence on the cotton market."

It was likely that economic confidence would continue to steer both share and cotton prices "into 2010".

'Stocks hardly tight' 

Cotton's experience contrasts sharply with that of many other commodities, which have sharply underperformed shares for most of the year.

However, there has also been some support for price rises from crop fundamental, with two successive years of production declines set to drive the key ratio of global stocks, as a proportion of consumption, to its lowest since 2003-04.

"While stocks [as a proportion of consumption] can hardly be considered historically tight at 50%... the market is looking to the future, worried that stocks may dip to levels that would promote higher prices," Mr Matthews said.

The deteriorating prospects for production in America, the world's biggest cotton exporter, have kept the market on its toes, with rain delaying the harvest and worsening the crop's condition which, at 44% good or excellent, is rated well below average.

Cotton vs soybeans 

Yet there appear weak prospects for US cotton acreages improving while prices of soybeans, an alternative for many farmers, remain high.

Cotton prices, even after their rally since March, remain relatively low compared with soybeans. Over the last 30 years, the price of cotton per pound, times 10, has averaged the price per bushel of soybeans.

"Since 2000, the ratio has largely been below the long-run average, contributing to the substitution of acres out of cotton and into soybeans," Mr Matthews said.

"The fight for acres is likely to be a primary support for future cotton prices."