Cotton prices jumped to a record high on Friday on strong Chinese demand and the prospect of reduced supply.

In New York, ICE December cotton futures touched 119.80 cents a pound, the highest price since 1995, The Financial Times reported.

Rising cotton prices will mean higher clothing prices, especially in low-cost items such as t-shirts and underwear. Jeans-maker Levi Strauss has already announced price increases due to the cost of cotton.

Last week, the U.S. Department of Agriculture lowered its estimates for cotton production. Meanwhile, cotton futures in China are trading at 160 cents a pound on local shortages.

"China panics, then New York reacts to it the next day," Peter Egli, risk manager at Plexus Cotton, told the FT.

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