Lift in cotton prices seen due to short supply and a slower pace of sowing. Another factor responsible for the rally in prices is scanty rainfall, especially in Gujarat, the largest cotton growing state in India. The state has a rain deficit of more than 50% in the first week of July. Sowing has been affected in the wake of less rainfall. Cotton acreage is likely to fall this year.

The Cotton Advisory Board (CAB) under the Union textile ministry had projected cotton production of 101 lakh bales for 2015-16 for Gujarat.

Cotton is currently being traded at Rs 45,000 to Rs 46,000 per candy (356 kg). The current prices have firmed up by Rs 12,000 per candy in the last one and half month, said Arun Dalal, a city-based cotton trader.

Prices of Shankar-6, Gujarat's benchmark cotton variety, jumped by over 26% in just one and a half month.

Currently, cotton stock of 22-23 lakh bales (170 kg) is available across India, while there is demand from mills. Cotton is also being imported from Australia but it will take a month to reach India. The short-supply at the moment has jacked up cotton prices, said, Nirav Patel, another trader.

According to market players, supply of the fibre is falling short of demand as the cotton season nears an end and the new season arrivals will start only after October this year. In fact, cotton sowing across the country is slow, signaling the possibility of lower acreage, which has further pushed up prices in local markets.

As per the latest available data, Gujarat has seen cotton sowing on 10 lakh hectares during the ongoing kharif season as compared to 12.17 lakh hectares during the same period last year. Even across the country, sowing activity is slower with only 67.89 lakh hectares being covered under cotton as against 97.83 lakh hectares in the corresponding period last year.