Cotton prices have soared to a 25-year high. At ICE Futures U.S., cotton currently trades at 93.73 cents a pound, up 24% this year and the highest since Oct. 1995. “Demand continues to grow; it’s the supply that’s in question,” says Ronald Lawson, managing director of LOGIC Advisors, a commodities consulting firm.

Global cotton consumption is estimated to outstrip output this year, further drawing down cotton’s stocks, according to the U.S. Department of Agriculture. On the supply side, Pakistan, the world’s largest cotton grower, suffered heavy crop losses due to floods, while, India recently imposed a prohibitive tax on cotton exports to protect domestic textile manufacturers.

Cotton’s rally bodes well for the economic recovery, as it is the longest leading economic indicator of all the commodities. From a bag of cottonseeds to a T-shirt, it takes about 18 months as it goes through planting, ginning, spinning and weaving. “No other raw material takes that long and is influenced by that many different things,” Mr. Lawson said.