Cotton prices hit a new post-Civil War record Monday, blowing past the previous high set just two weeks ago.

Heavy Chinese demand for the fiber propelled futures to their highest nominal
point since trading began in 1870, as textile mills continue their rapid buying and further stretch already-tight global supplies.

"There doesn't seem to be a price they won't pay," FCStone Fibres & Textiles
analyst Andy Ryan said.

Cotton for December delivery rose 5 cents, or 4.2%, to $1.2471 in midday trading, the largest daily gain allowed on the　IntercontinentalExchange. It is still far off the inflation-adjusted high of $5.26 a pound in 1918.

Prices have now risen their limit in three of the last six sessions. Futures are normally confined to a maximum 4-cent swing. However, the exchange is allowed to increase that range for the following session if prices settle at the limit.

A hailstorm in west Texas soaked cotton fields Friday, driving futures up 4 cents on fears the weather would significantly damage crops, despite a worst-case projected loss of 200,000 bales. By comparison, the USDA estimates Texas will produce 8.9 million bales this year.

Should prices settle at Monday's 5-cent limit, the range will be increased once again, to 6 cents.

Analysts attributed the recent surge to consistently high demand from mills in China. Traders expected the world's largest producer and consumer to increase imports after heavy rains cut into its crop earlier this year, but the lengthy buying period has stoked fears that China's crop is much smaller than
originally projected.

The Chinese General Administration of Customs said Monday cotton imports in September nearly doubled from a year earlier, despite record prices that will likely damage mills' margins.

Ryan said that ICE futures normally set the bar on cotton prices, but in this case, the Chinese Cotton Index is leading the way and pulling every other exchange higher.

"The Chinese usually follow us, but in this case the tail is wagging the dog," he said.

That means prices could move even further into uncharted territory. Few traders are willing to short sell contracts amid such a spike, leaving the market sensitive to any slight change in supply.

"This is a very painful supply squeeze," Country Hedging analyst Sterling Smith said. "It's scared every bear out of the market."

Source: Adam Cancryn Of DOW JONES NEWSWIRES

ICE Dec10 Cotton Trend:

source:ChinaTexnet