The run-up was all the more remarkable amid the backdrop of rather dreary economic forecasts. A falling stock market is generally a drag on cotton prices. Happy investors, it seems, like cotton shirts, while Gloomy Gusses prefer polyester (remember the stagflation '70s?).

The forecast for cotton exports isn't particularly brilliant. Although the U.S. Department of Agriculture's prognostication of total agricultural shipments was revised upward yesterday to a record $101 billion for fiscal 2008, the cotton outlook was actually lowered. $5.6 billion in cotton exports, $200 million less than forecast in November, are estimated by USDA. As cold comfort, that's still a record.

Carryover stocks loom large in the face of dampening demand by key consumers. U.S. growers, too, are facing stiffer competition in the export market. World consumption has fallen 2% since the USDA's last forecast, as mill use in China, Pakistan, India and Turkey has waned. These four markets accounted for nearly 60% of U.S. cotton exports last year. India, in particular, is transforming itself into an export competitor as it's ramped up domestic production while curtailing consumption.

Resistance at the 74-cent level is the next upside target for the March contract. On the downside, a close below 68.65 would confirm a reversal. The later seems likely given the overbought technicals. The market's shallow volume suggests a lack of broad participation, so if you're long, look for someone in a cotton shirt to unload your contracts or ETF shares.

Cotton makes up nearly 12% of weight in the index tracked by the ELEMENTS Rogers International Agricultural ETN (AMEX: RJA) and about 8% of the benchmark weight of the iPath Dow Jones-AIG Agriculture ETN (NYSE Arca: JJA).

NYBOT/ICE Cotton (Mar '08)