* Prices rally as May contract heads into delivery period
* ICE stocks climb to highest levels since late July
* U.S. farmers behind prior years' crop progress -gov't data
NEW YORK, April 22 (Reuters) - Cotton futures climbed to a four-week peak on Tuesday as traders raced to exit short positions and mills set prices ahead of the May contract expiry.
The benchmark July cotton contract on ICE Futures U.S. finished up 1.04 cents, or 1.1 percent, at 93.25 cents a lb after climbing to 93.49 cents a lb, the second-month's highest since the end of March.
The front-month May ICE cotton contract jumped 1.32 cents, or 1.5 percent, to settle at 91.01 cents a lb.
The gains came as traders covered shorts and mills set prices for previously booked bales ahead of this week's first notice day for delivery against the May contract, which is due to expire on May 7.
U.S. government data on Thursday showed that buyers of U.S. cotton remained behind previous years' progress in setting prices for their orders. That "on-call" buying often comes in on price dips, bolstering the market.
"There were some mills waiting until the last moments, and some of the merchants are nervous to get out," said Peter Egli, director of risk management for British merchant Plexus Cotton Ltd.
Dealers said they expected that the delivery against the May contract would be small as many traders had chosen to roll their positions forward into the July and December contracts.
ICE inventories climbed to about 292,100 bales on Monday, up from 284,400 bales previously, the most recent exchange data showed on Tuesday. That was the highest since July, according to data compiled by Reuters.
A weekly U.S. government crop progress report released showed that U.S. farmers had planted about 9 percent of the 2014/15 crop, lagging previous years.
Traders said that supply concerns in the final months of the 2013/14 crop year that ends July 31 have kept U.S. prices hovering near the two-year highs around 97 cents a lb struck last month.
Even so, world inventories are projected to reach a record of nearly 97 million bales by the end of 2013/14, having ballooned due to back-to-back surplus seasons and a government stockpiling program in China, the world's top consumer. (Reporting by Chris Prentice; Editing by Eric Walsh)
