The rally that drove cotton prices to the highest since America was recovering from the Civil War is ending as farmers from Texas to New South Wales plant record crops and replenish stockpiles for the first time since 2007.

Cotton will drop 51 percent to $1 a pound by Dec. 31, according to the median in a Bloomberg survey of 14 analysts and traders. Hedge funds are already cutting bets on higher prices by the most in three years. Output may rise 11 percent to 127.5 million bales in the year that starts Aug. 1, three times faster than a 3 percent gain in demand to 120 million bales, the U.S.
Department of Agriculture estimates. One 480-pound bale is enough for 215 pairs of jeans.

"We have had quite a nice run, and I don't see it sustaining," said John Stephenson, who helps manage more than
C$2 billion ($2 billion) at First Asset Investment Management Inc. in Toronto. "More acreage will be dedicated to cotton, and in a scenario where consumers are facing higher food and fuel prices, clothing will take a back seat."

Cotton rose to $2.197 on March 7, the highest in 140 years of trading in New York, after flooding in Australia and Pakistan and freezes in China ruined crops. Adidas AG, the second-largest sporting-goods maker, said this month that cotton was a cost threatening margins, and Wal-Mart Stores Inc., the world's biggest retailer, paid more for garments including jeans.

Eoin Treacy's view Cotton's rally over the last six months has been remarkable for a number of reasons but chief among them is that it has broken a 38-year inflation adjusted downtrend. This is a common characteristic among soft commodities and further suggests that prices are in both nominal and absolute return bull markets.

The front month contract remains in a relatively consistent uptrend but has lost momentum somewhat over the last month. The 8-month progression of higher reaction lows remains intact and a sustained move below 180¢ would be required to confirm that a medium-term peak has been reached.

Longer-term, nominal prices ranged mostly below 100¢ from 1973 until last year. That area is likely to offer a floor on any significant correction.