According to Egli, high prices of 2010 are unlike the high prices of March 2008, “when a liquidity squeeze in the futures market pushed prices higher, while the cash market never followed through. This time, the cash is leading the way and the futures market has been playing catch up. It is an extremely bullish sign.”

Another bullish factor for higher cotton prices is the value of the dollar, according to Egli. But the dark side of this fundamental is increasing U.S. federal debt, around $13.5 trillion and growing about $2 trillion per year, “which is simply unsustainable. Economic growth is too weak to be the solution at the moment. It takes $9 of new credit to get $1 of gross domestic product, which is more than twice as much as it was 10 years ago.”

The Federal Reserve’s response is to print more money, Egli noted. “Think of it this way. If there is an ever-increasing amount of paper money chasing a relatively finite amount of goods, then the value of commodities measured in paper money has to go up.”

On the other hand, if the value of cotton is measured against the ultimate hard currency — gold, its value has decreased, Egli says. “In 2003, a bale of cotton was worth about 1 ounce of gold. In March 2008, a bale of cotton could be purchased for a half an ounce of gold. Today, it takes only about one-fourth of an ounce of gold to pay for a bale of cotton.”

Egli says that as “investors are seeing that the printing press is not the solution to an economic problem, we are seeing diversification into tangible assets like commodities in an effort to preserve value and there is no end to the trend in sight.”

Another contributor to the perfect storm in cotton is the technical uptrend of the market, according to Egli. “It has attracted technical and computer-based spec buying into the market, and they will stay with this trend as long as it lasts.”

Egli believes the cotton market will settle into a trading range of between 90 cents and $1.10 “once the current panic blows over.” He also believes that prices should remain high, especially with the devaluation of the U.S. dollar “which will continue to force the price of just about everything higher over time.”

Another factor is that in a few years’ time, “daily demand for crude oil will bump against the world’s ability to produce it, which means that energy prices are going to rise further. This will have a bullish impact on cotton prices.

“While cotton consumption may react negatively to these high prices for a short time, bear in mind, cotton consumption in absolute terms will continue to go higher, even if it loses the race against man-made fibers.”

The potential is huge, according to Egli. “If global per capita consumption of cotton was to rise to the level of U.S. per capita consumption, annual cotton demand would be around 460 million bales. I’m sure the same holds true for other ag products. It will become increasingly more difficult to meet all the demand out there.”