Benchmark March cotton futures ended 12 cent higher at 95.92 cents a lb.
The session range narrowed to 94.75 to 96.48 cents.
The contract reached its loftiest level since November 18 and settled at its highest since November 17.
Traded volume on Wednesday came 13,161 lots, about 64 percent higher than the 30-day average, Thomson Reuters preliminary data showed.
On Tuesday, the first trading day after the New Year’s holiday, cotton also set a high last seen on November 17, fuelled by sharp gains in agricultural commodities across the board and expectations of buying related to index rebalancing.
Mike Stevens, an independent cotton analyst in Mandeville, Louisiana, said buying was mostly speculative and noted that prices kept moving higher even as farmers sold into the rally.
“Traders world-wide had bullish attitudes, as they were aggressive on the long side of both equities and commodities.
The market literally flew through areas that would normally have provided technical resistance like a drink of water,” he said.
Analysts said they expected an increase in weightings of cotton in major commodity indexes that should translate into some market strength over the first few weeks of the year.
With cotton’s latest advance, chartists think cotton prices have more upside ahead.
In mid-December, benchmark cotton prices slid to their lowest levels in more than a year and have been ratcheting back up since.
Cotton ended 2011 with the biggest decline for commodities on the year, falling around 37 percent from 2010, despite setting a record above $2.20 a lb in early March.
At the annual Beltwide cotton conference, a climatologist said the La Nina phenomenon may keep Texas and the south-western United States mired in a prolonged dry spell that resulted in a once-in-a-century drought last year that damaged cotton crops.
Looking globally, the UK’s Met Office also said 2012 could become one of the top 10 hottest since 1850, a factor that could continue to drive cotton prices up.
Total volume traded Tuesday came to a robust 25,149 lots, a jump up from 6,765 lots on Friday, ICE Futures US data showed.
Open interest, an indicator of investor exposure, edged down to 152,079 lots as of Tuesday from 152,144 lots on Friday, exchange data showed.