Cotton prices soar above $1,000 a bale

While precious metals and oil nab most of the financial headlines, cotton has outperformed them both, doubling in price over the past year. The May contract has experienced intraday price swings of more than $100 a bale in recent trading.

“The U.S. is the biggest exporter in the world and they are sold out,” Phill Ryan, a director of the Australian Cotton Shippers Association, told Bloomberg last week.

That's pushed prices to all-time record levels. The supply crunch has also been stoked by news that China and India will produce less cotton than they'd formerly estimated. Throw in the fact that clothing retail sales in the U.S. are expected to climb this year, and cotton prices could face more upward pressure in the months to come.

Already, 80 percent of the coming harvest from Australia has been sold, Bloomberg reports. That's a jump of 20 to 30 percent over typical forward sales this time of year. Heavy forward sales come on the heels of smaller cotton crops in Australia after flooding in Queensland.

The big question is, how long will the bull market run? Record prices for cotton will likely lead to a big jump in cotton output next year. Australia, for instance, could produce 1.106 million tons in the country's next harvest season in 2012. The current season's harvest will yield considerably less cotton (839,000 tons).

All told, global production is expected to rise 11 percent in the year from Aug. 1, according to the International Cotton Advisory Committee. That should help relieve the supply crunch – just don't expect that relief anytime soon. 2012 is still a long way off.