COTTON DIVISION

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

March 17 - 21, 2003

It was of little surprise to many that New York Cotton Exchange prices took it easier this week. After a significant improvement of values, especially during the past week, the market was poised for a correction. This correction has yet to reverse the up-trend that cotton prices have established in the recent past, which seems most unlikely at this time, despite the still noticeable stock situation as well as the speculators’ heavy net long position. For the reporting week ending Friday, March 14, 2003, speculators had adjusted their position only marginally from 50.3 percent to 50.5 percent, which was of little significance. Nonetheless, market observers have been pointing out that on any move lower, speculators have been reducing their position, ultimately providing them with additional ammunition and comfort to add to their longs again at a later stage, driving prices higher. Although the uncertainty of war in the middle East has come to an end this week, it has not provided the stock market with the boost many had been anticipating and as such has also failed to provide additional support to the cotton market, which tends to be largely influenced by stock indices. Much of the professional money that has been driving commodity markets in recent months remains on the sidelines, failing to push prices higher. Contrary, the announcement by US President Bush that this war may ultimately last longer than many had forecast will potentially weigh heavily on cotton values, as any interruption in shipments will cost exporters dearly. So far, and maybe in anticipation thereof, export sales, however, have continued strongly as new sales for
 

the week ending March 13 reached another 358,300 bales or 6 percent less than during the prior reporting week, yet 25 percent above the 4-week average. Increases in commitments to China were once again the driving force. Exports likewise were most impressive at 265,700 bales, a new marketing-year high, as they improved 5 percent over the previous week and solid 27 percent over the 4-week average.

Despite some of the obvious setbacks to be experienced in the cotton ring in days and weeks to come, the market continues to find good support around 58 cents and short of any major development around the globe, we continue to believe in gradual price advances.

US Pima sales continue to impress as growers are beginning to plant their next crop. Sales to overseas customers reached 20,900 bales net for the reporting week ending March 13, pushing cumulative sales to 545,000 bales for the current marketing year. The competitiveness of American Pima cotton is particularly demonstrated via the continuous sales of last year’s crop from the USDA inventory. This past week another 9,555 bales were sold in an USDA organized auction, which brings total sales of forfeited stocks to 75,376 bales. Prices at the previous auction had ranged from 70.16 to 88.03 cents per pound, in-store at the interior warehouse, uncompressed, and the expectation is, in light of the gradual decrease in the Pima competitiveness rate, that future catalogues will receive equally strong attention, however, at lower bidding levels. For the coming week, the USDA is offering another 20,098 bales of 2001/2002 crop California Pima for sale and judging from the success of the past 9 catalogues one can well assume similar results going forward, soon diminishing the remaining inventory.

New crop production therefore, is receiving a lot of attention, something growers are keenly aware of. Most of them have been using a window of opportunity this past week to commence planting as precipitation has come to an end and soil temperature began to rise. As always, the coming weeks will be crucial for all participants in the Pima trade yet current forecast are pointing towards seasonal conditions. The biggest question-mark remains the final acreage planted with Pima cotton and the opinions are as diverse as ever. While some local observers are convinced the NCC survey of 184,000 acres in total is correct, others are of the opinion the figure for California of

159,000 acres is simply is too low. There is little one can do to verify the exact figure until the crop makes some further progress. Meanwhile, though, it is important to remember that most of the current 2002/2003 crop year has either been sold or placed into the USDA loan, which keeps a lid on offers that may be available until prices reach a level, permitting the buyer to redeem cotton out of the loan, repaying the government for all accrued charges. While that may still take a while to accomplish, there can be no doubt that ELS prices worldwide are marching towards higher territory.

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