COTTON DIVISION

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

February 3 - 7, 2003

This was not one of cotton’s better weekly performances as March option expiration, partial liquidation of speculative long positions and continuous grower selling pressured the market. As has been witnessed during past months, any advance in New York was aggressively met by selling primarily from producers but from time to time by merchants and speculators alike. The market’s inability to pierce the highest settlement in 22 months of 52.36 for the March 2003 position caused values to retract daily during the past 5 sessions. The release of the commitment of traders’ report on Tuesday afternoon showed speculators had increased their net long position to yet another record-breaking figure of 43.4 percent of the open interest, up 6.1 percent from the week before. Meanwhile, the speculative gross position reached the new record long of 57,675 lots, up from the record set two weeks ago of 55,837 lots. The vehemence with which speculators had added to their prior position sparked analysts to anticipate a setback in prices as at least a partial liquidation of such massive position appeared to be a common conclusion. The International Cotton Advisory Committee released Monday its supply and consumption report for the 2002/2003-season, which reinforced the longer-term bullish fundamental outlook for the market. Worldwide consumption was estimated at 95.8 million 480-pound bales, or 20.87 million metric tons, up 3.6 percent from 2001/2002 and an all-time high. Production was pegged at 88.6 million bales, or 19.30 million metric tons, down 2.2 million tons or 10 percent from last season's record. Therefore, world-ending stocks were seen shrinking from 10.4 

million tons in 2001/2002, a 16-year high, to an estimated 8.8 million tons, the lowest since 1994/1995. The ICAC was also expecting an increase in planted acreage in the Northern Hemisphere and China for the 2003/2004-season, which in part proved to be correct as the National Cotton Council released its annual grower-survey-based planting intention report for the US today, which revealed a modest rise for the 2003/2004 crop year. U.S. cotton producers declared that they intend to plant 14.05 million acres of cotton this spring, up 0.6 percent from 2002. Upland cotton intentions are 13.86 million acres, representing an increase of 1.1 percent from 2002 plantings of 13.72 million acres. Calculating average abandonment, total harvested acres would turn out to be about 12.70 million acres and when applying each state’s average yield to its 2003 projected harvested acres, combined production would arrive at 17.10 million bales, which compares to 2003’s total production of 17.15 million bales. Based on the survey results, the Mid-South and the Southwest show the largest increases with plantings up 3.3 percent and 3.2 percent, respectively. A decrease of 5.0 percent is indicated for the Southeast, which may reflect some pessimism and financial stress in a region that had suffered through one of the worst droughts in history. Upland acreage in the West is up 1.1 percent. Private estimates reviewed prior to the release of the NCC-data had hovered around 14.0 to 14.5 million acres and as such, today’s release is not expected to have tremendous impact on prices come Monday. Weekly export sales were not able to turn the downward trend of cotton prices around either although net Upland sales of 254,100 running bales equaled the amount registered the week earlier and were 22 percent above the prior 4-week average. Exports of 220,600 running bales were 1 percent above the previous week and 2 percent over the prior 4-week average.

Though a more bullish path seems to reveal itself for cotton in months ahead, the near-term price movements appear to be range-bound between 45 and 55 cents.

The Kansas City Commodity Office of the Farm Service Agency confirmed this week that it had sold about 7,100 bales from 31 lots of Pima 2001-crop cotton on January 27. The bales were located in California and Arizona. The lowest bid award was 65.11 cents per pound and the highest bid award was 84.61 cents per pound with an average of 83.20 cents. On January 27 the Kansas City Office announced another sale of 10,200 bales of Pima 2001-crop cotton with a bid closing date of February 4. A total of 8,925 bales were sold during this second Pima auction at a surprising average price of 86.21 cents per pound. All prices are for cotton stored in-warehouse in the interior with compression charges of around 200 points plus all other warehouse handling charges for the successful bidder’s account. Meanwhile export sales continue in their faithful manner, registering another 6,700 bales for the week ending January 30, bringing total commitments for the season to just over 500,000 bales. Growers continued cultivating, leveling, applying pre-plant herbicide treatments and preparing planting beds for the 2003/2004-crop. Growers that had completed land preparation were waiting

for suitable planting conditions. Cotton plow-down remained incomplete because of wet field conditions while some ginning from modules continued and is expected to last another 2 weeks in most locations. The National Cotton Council’s plant-intention report today provided for some surprises as ELS acreage for the coming season is expected to decrease by a whopping 24.7 percent, when compared to this year’s acreage, to 184,000 acres. Primary reasons cited for the sharp decline were the extraordinarily high Acala yields this year as well as water cost. Such acreage would yield 453,000 bales by the end of this year, leaving little room for error should among others some of the present weather forecasts hold true and produce excessive untimely precipitation by early/mid April 2003. In addition, the continued strength of the export markets coupled with the draw-down of ELS inventory both in the US as well as of foreign ELS-growths overseas are to monitored closely in order to arrive at an adequate value for next year’s Pima production. Growers still have to await the legal deadline of March 10 in the San Joaquin Valley before they can commence sowing of next year’s US Pima crop, however, they can be assured that all eyes of the ELS consuming world will rest upon them at that time and during the crucial weeks and months thereafter.

Prospective 2003 U.S. Cotton Plantings as per NCC release 02/07/03:

• Previous Report