COTTON DIVISION

WEEKLY REPORT
by Alex Gansch -- Vice President / Senior Trader

January 26 - 30, 2004

“Sell the fact, buy the rumour” was once again the most applicable statement for this past week as prices tumbled for the most part, yet gained strength as overseas business once again appeared to be improving. Logically sparked by the recent price decay, offers have become once again attractive to overseas buyers, even considering the gradually strengthening U.S. Dollar. Especially with the Chinese returning from their Lunar New Year festivities, significant sales, as were rumoured of having been concluded towards the later part of this week, appear most likely. While that support was missing, however, earlier this week, prices in New York were primarily influenced by technical considerations, which showed little mercy for the bulls. The triple top at 76.10 in the spot month apparently represented a hindrance impossible for the market to overcome and coupled with the announcement that the speculative net long position had grown, albeit marginally, to 43.9 percent from the previous week’s 42.1 percent, was all the information the bears had been hoping for. As other soft commodities fared similarly poorly, especially on Wednesday of this week, especially in coffee, cocoa, soybeans, bean-oil etc., cotton stood little chance for an immediate recovery by mid-week. Instead, the USDA announced its weekly Export Report, showing dismal new sales of 59,300 bales or 64 percent less than during the previous week and 52 percent below the prior 4-week average. Exports came in equally light with 196,200 bales or 45 percent below the prior week and 19 percent less than the prior 4-week average. Meanwhile, the National Cotton Council said U.S. textile mills used cotton on a seasonally-adjusted annual rate of 6.62 million 480-pound bales in December, which was higher than most analysts' expectations, however, the NCC revision of its November figure to 6.57

million from the previous estimate of 6.64 million bales took some of the supportive element out of the report. It will be interesting to watch now, how the National Cotton Council’s first release of the anticipated 2004/2005 acreage will affect prices on Monday. After today’s close, it announced that US producer are currently planning on planting 14.759 million acres, which represents an increase of 9.5 percent from the previous season and is higher than most private analysts had expected as they calculated stronger competition for acreage from the sharp increase in soybean values over the past year.

None of the relatively strong arguments made by either the demand-driven bulls, nor the production- oriented bears appear to sway the market at this time decisively into either direction, however, as both depend on factors (weather, stronger export sales), which are far from being clear, one should expect strong reaction to either side of the scale in the near future.

As for US Pima, prices for both current and new crop production have been coming off over the past 5 days, though in varying degrees. While 2003/2004 production continues to sell, however, only in modest quantities due to the lack of the US subsidy, asking prices have been reduced in moderation. Sellers of new crop US Pima, on the other hand, seem to have taken a more aggressive stand as producers get closer to planting time. The need to show sales contracts to their lenders has provided enough reasoning for some to cut their prices rather drastically, in order to secure the required financing for the coming season and as such the few new crop offers in circulation were reduced accordingly to “get the business done.” USDA’s Weekly Export Report revealed fresh sales of 2,200 bales of current crop Pima, lifting the cumulative total to 416,700 compared with 441,200 b/c at the same time last year while simultaneously, sales for the next crop year increased by 2,100 bales.

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