* Says prices could rise another 10 pct this season
* Speculators have driven cotton prices in 2013
* Price volatility expected to remain-Olam
By Emma Farge
GENEVA, March 11 (Reuters) - Cotton prices could rise by as much as 10 percent before the end of the season, according to a leading commodity trader, even as the market braces for a record surplus and merchants worry that high prices will discourage demand.
Raw cotton fibre, the world's worst performing commodity over the last two years, has already risen by 15 percent since the start of 2013 as speculators have bet on strong Chinese imports while farmers switch acreage away from cotton to higher-priced grains.
"Assuming that China does not surprise the trade or a black-swan event occurs, prices have probably already set a low for the season around 82 cents (per lb) CFR Far East ports and would assume the high not to exceed $1," said Jagdish Parihar, global head of natural fibres at Olam International in an emailed response to Reuters questions.
The cotton season runs from Aug. 1 to end-July.
The forecast from Singapore's Olam, which has a turnover of nearly $14 billion and is one of the world's biggest cotton merchants, equates to between 77 cents and 95 cents per lb on ICE Futures U.S.
The high end of the range is some 10 percent above Monday's prices of around 86 cents.
"It must be noted, (prices) at both ends of this trading range will cause distortion in trade flows and stock levels around the world," Parihar added.
His bullish outlook may alarm end-users, who see little fundamental reason for cotton's two-month rally as the global surplus grows, a sluggish global economy stifles retail demand for clothing and spinning mills use more lower-cost synthetic fabrics.
Even so, speculators have piled back in since early January, sending prices on their longest winning streak in two years, betting that prices had reached a bottom after two years of decline.
Parihar said the price volatility that has engulfed the cotton market since 2008 was likely to remain a feature in the long term.
"It is hard not to see cotton prices being volatile in the coming years as it battles two outside forces affecting both supply and demand," he said.
The main variable on the supply side is likely to be the size of acreage dedicated to fibre. This year, U.S. farmers are expected to plant one of their smallest cotton crops in decades as they gravitate towards higher-priced grains.
"Swings in either direction with one of these commodities can enlarge the cotton area or deplete it greatly," Parihar said.
Changes in supply are common from one year to the next as farmers plant the most profitable crops. Output also depends on weather conditions.
But fluctuations have become more extreme since 2010, when Beijing's strategic reserve launched a two-year buying spree, distorting trade flows and supplies.
The reserve has already bought most of China's domestic current crop, forcing mills in the world's No. 1 consumer to import more fibre.
That means more than half of this year's record carryover will be in the reserve's hands and therefore not available to the market.
While that is bullish, many traders worry about the government's intentions for its stockpile and the long-term impact on prices from any release onto the market.