May 22 (Reuters) -ICE cotton futures rose more than 3% to hit the upper trading limit on Wednesday, helped by buyback phenomenon as traders covered short positions ahead of a weekly federal export sales report on Thursday.

* Cotton contracts for July CTc1 rose 3 cents, or 3.9%, to 79.38 cents per lb by 12:38 p.m. ET (1638 GMT), trading at a near two-week high.

* "Since last week the pattern had been of gradual buying back of winning short positions while prices flattened, which is now culminating in a small short-squeeze from weaker specs trying to get out," said Valentin Olah, risk management consultant at StoneX Group.

* A short squeeze occurs when the price of a stock rises to such an extent that investors who have sold short purchase the stock in order to limit their losses, causing the price to rise further.

* "We do estimate weather challenges towards the back end of the year, with potentially a more active hurricane season," Olah added.

* In other agricultural markets, Chicago wheat futures climbed for a third session to a new 10-month peak as concern grew about deteriorating harvest prospects in top exporter Russia. GRA/

* "Heavy rains in the southern Delta and Southeast this past week significantly improved moisture for cotton. Some improvement is expected in the Coastal Bend this week, although more will still be needed in southern areas," weather forecaster Maxar wrote in a weekly note.

* Traders now await the U.S. Department of Agriculture's (USDA) weekly export sales report on Thursday for further clues on the demand outlook.

Reporting by Anjana Anil in Bengaluru; Editing by Shailesh Kuber