COTTON DIVISION

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

March 1 - 5, 2004

Despite continuous talk of fresh physical demand, notably from China, the lack of confirmation of export sales is causing the market to gradually move lower. Although the rumours of China increasing its import quota of foreign cotton by 1.0 mio. bales of last week were finally confirmed today, the market had already pretty much factored that figure into its performance and the reaction to the news was quite dull. Although weekly export shipments came in higher than expected, which was welcome, especially since there is currently no export subsidy (step-2) payment available, overseas buyers evidently remain on the sidelines in expectation of lower prices before adding to their purchases. For the week ending February 26, the USDA showed new sales of 148,100 b/c or 26 percent less than the previous week and two-thirds less than under the prior 4-week average. Shipments amounted to 318,000 bales, however, were 17 percent above the previous week and 4 percent over the prior 4-week average. The major buyer and destination was once again China. The recent rise in the value of the US Dollar has obviously further dampened buying-enthusiasm while many market participants are also awaiting the release of the next monthly USDA Supply/Demand Report due to be published this coming Wednesday, March 10. Estimates for U.S. exports and mill use are expected to rise while production figures are anticipated to be left unchanged until some potential changes might be announced in May of this year. Meanwhile, whatever buying did occur this week was supposedly coming from the specs and funds, which were buying back shorts they had sold previously at higher levels. The respective spec/hedge report of last week already reflected some of this short liquidation as speculators increased their net long position from 7.9 percent the previous week to 22.5 percent. The

report also indicates, however, that the support level, at which the spec community will truly add more massively to its long position has yet to be tested. Simultaneously, cotton suffered from the same fate as some of the other industrial and soft commodities this week, causing the CRB to retract from its recent 15-year high.

The strengthening of the US Dollar has been somewhat negative for cotton export sales yet even at current rate of shipments the USDA target of 13.2 mio. bales is achievable. Additional purchases by the Chinese textile industry can be expected in due course, given the level of the high interior prices for their own cotton, however, US values will have to move lower still and probably around the current technical support level of 64 cents one can expect actual business to be concluded and the market to find some more significant near-term support. Further forward, however, short of any major event curtailing production, it is difficult to be bullish.

US Pima weekly export sales for the week ending February 26 reached 4,300 b/c, bringing total sales to 435,300 b/c of which 374,200 have been shipped to-date. This compares to 515,600 b/c sold at the same time last year of which 358,200 b/c had been shipped overseas. Merchants added another 1,900 bales to new crop sales to lift total commitments to 12,300 b/c or 6,600 bales more than at the same time last year. The recent decline in offering prices for both current and new crop production has stimulated sales as expected and given the gradual decline of asking rates one would expect export sales to continue at steady pace. Meanwhile, the Sierra Nevada Mountains received additional snow with the snow pack now reported to be 130 to 140 percent of normal, which will be providing ample irrigation water at time of need. Ground preparation is progressing rapidly especially in California, where growers would be pleased to find an early start into the season by planting towards the latter part of this month. At this time, subsoil moisture levels are ideal and it will only take the respective amount of heat units via dry and warm daytime temperatures to establish virtually ideal planting conditions.

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