Cotton merchants are betting on futures prices following the physical market above $0.90 cents a pound, even as caution ahead of monsoon forecasts put the brakes on the latest rally.

The $0.90 cents a pound that Amil bought cotton at in Italy earlier this week has set a trend for New York futures has become a "target" for the trade, Sucden Financial France said

"This was a small deal, symbolic. But this is where merchants believe the market can go," Sucden's Jerome Jourquin told Agrimoney.com.

Merchants' "new" ambition, for the July contract, would put prices within three cents a pound of hitting their highest since late 1995, when cotton topped $1 a pound after dry weather, pests and disease sent Asian production sharply lower.

Monsoon question

Nonetheless, prices eased on Thursday amid concerns that India may reverse the ban on cotton exports which have sent prices soaring this week.

The country's official weather service will on Friday unveil forecasts for this year's monsoon.

"It is possible that the import restrictions will be loosened again if the forecast indicates a monsoon season with heavy rains this year and prices will lose some of their gains again," Commerzbank said.

However, even a rosy monsoon forecast looked unlikely to depress prices below $0.80 a pound, with plantings in China being delayed by cold weather, and those in the US likely to remain below historic levels, while higher than last year.

'Few sellers'

Mr Jourquin said that selling cotton was a "dangerous" strategy given a dearth of sellers - reflecting both to high cash prices, which are some 3-4 cents higher than in the futures market, and a hangover from an industry fall out two years ago.

Then, a disconnect between New York prices, driven higher by speculators, and the physical market left many traders into financial difficulties, prompting a wave of consolidation and leaving many participants shy of the futures market.

"Even if prices go higher, there are few sellers around," he said.

While a short-term pullback was possible, the trend for coming weeks appeared to show "more upside than downside".

Cotton for May delivery closed down 0.62 cents at 82.42 cents a pound in New York.