Cloth.
*
Cotton also spawned a series of federal regulations during the war. The North needed cotton for its textile mills, and it wanted to deprive the South of its financing power.
http://mshistory.k12.ms.us/articles/291/...
The price of cotton soared from 10 cents a pound in 1860 to
$1.89 a pound in 1863-1864. [see King Cotton diplomacy - wikipedia]
Cotton ruled the Northeast because the domestic textile industry there produced $100 million worth of cloth each year. In addition, the North
sold to the cotton-growing South more than $150 million worth of manufactured goods every year, and Northern ships transported cotton
and cotton products worldwide. Although the South never succeeded
in convincing foreign powers to intervene against the North, cotton
diplomacy was successful in obtaining financial help from abroad.
http://www.civilwarhome.com/kingcotton.h...

Besides cloth, it was used for explosives manufacture. Actually, the North needed Nitrocellulose, which is derived from cotton, to make explosives.

Nitrocellulose is a highly flammable compound formed by nitrating cellulose through exposure to nitric acid or another powerful nitrating agent. When used as a propellant or low-order explosive, it is also known as guncotton. The power of guncotton made it suitable for blasting. As a projectile driver, it has around six times the gas generation of an equal volume of black powder and produces less smoke and less heating.

By the way, Brunswick professor F. J. Otto produced guncotton in 1846 and was the first to publish the process.