After losing 1.5% last week, the cotton exchange traded note (ETN) iPath DJ AIG Cotton (NYSEArca: BAL) has come roaring back today, trading close to 7% higher at times.

The dip was largely driven by a broader market selloff instead of any shift in the fundamentals that have pushed cotton prices around 200% higher in just a year.

  • In Australia, severe flooding has devastated a variety of that country’s commodities with the fragile cotton being one of the worst hit. The nation, which is the fourth-largest producer of the crop, will see reduced output of around 4%.
  • China wants more cotton, too. According to ETF Daily News, the demand for cotton that is coming from China is growing, as the domestic 30 million bales  produced there will not meet the forecasted necessary 47 million bales anticipated. [Cotton ETN Leaps 6% As Prices Hit New Record.]

The latest gains  only further the incredible run that iPath DJ AIG Cotton (NYSEArca: BAL) has returned to investors over the past year; the fund is now up  204% over the past 52 weeks, close to 171% over the past six months and up 52% so far this year alone, making it the best performer by miles.

Cotton started 2010 around 75 cents a pound and after moderate gains in the first half of the year, then took off in the second half of 2010, surging to $1.76 a pound. [Why Cotton and Silver ETFs Are Leading the Way.]

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.