Perhaps the Union needed the cotton for its war effort. I can imagine that wool underwear would be awfully uncomfortable for soldiers in the field.
It was being sold over seas. The cotton seized by General Sherman as a result of his march to the sea was stamped by him “Property of The United States Treasury.” Those marks were erased and the name of a large cotton brokerage house in New York substituted. Sherman protested by Stanton over rode the protest. That is one reason why Sherman publicly refused to shake Stanton’s hand.