Cotton prices increased sharply during February thanks to strengthening fundamentals.

According to the International Cotton Advisory Committee, the Cotlook A Index rose from 75.35 cents per pound on Feb. 1 to 85.55 cents per pound on Feb. 26, supported by reduced production and rebounding mill use which are expected to generate a 15 percent drop in global cotton stocks.

Based on the expected change in the stocks-to-use ratio outside China and the average Cotlook A Index to date, the ICAC is projecting the 2009-10 Cotlook A Index at 74 cents per pound, 21 percent higher than the preceding season. The 95 percent confidence level extends from 69 cents to 79 cents per pound.

The daily A Index could remain above 80 cents per pound for some time, but competition with polyester and an expected increase in 2010-11 cotton production could cause prices to return to lower levels for the last few months of the 2009-10 season.

Higher prices paid for 2009-10 cotton, combined with the recent decline in prices of grains and oilseeds and relatively stable production costs, will encourage farmers to increase cotton plantings in 2010-11, the ICAC says.

World cotton production is forecast to rebound by 10 percent in 2010-11 to 112 million bales. World cotton mill use is expected to continue to recover in 2010-11, growing by 3 percent to 114 million bales, driven by continued improvement in global economic growth. World cotton trade is projected to increase slightly in 2010-11 to 35 million bales. A small reduction in cotton ending stocks is expected in 2010-11.