COTTON DIVISION

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

March 22 - 26, 2004

Cotton prices continued their descend despite anticipation for strong export sales in weeks to come and decreasing cotton acreage in the US, as some expect to be announced next Wednesday, when the USDA will release its 2004/2005 planting intention report. Meanwhile, speculators were found on both sides of the fence, leaving it quite uncertain which direction they may choose from their presently rather neutral position. Trade houses likewise are clearly torn about the market’s recent behaviour. While the step-2 payment currently in effect should have triggered both strong export sales as well as shipments, new commitments only arrived at 122,700 b/c or 73 percent less than the previous week and 46 percent under the prior 4-week average. Exports, though reaching a marketing-year high at 373,500 bales, fell nonetheless short of expectations, which had ranged from 500,000-600,000 bales. The U.S. Census Bureau and the National Cotton Council also released their U.S. cotton consumption data Thursday morning, showing another decline in domestic consumption as U.S. textile mills used cotton on a seasonally adjusted annual rate of 6.30 million 480-pound bales in February, down from 7.35 million bales in February 2003. Otherwise, traders occupied themselves with spread activity, widening the switches as the back months rallied, only gradually pulling up the front months. The back-month rally apparently had more to do with cotton being carried over from May to July and into December than any anticipation ahead of the projected cotton plantings report due next week.

Cotton prices remain a tough call and possibly the most likely scenario will be for prices to remain once again range-bound, finding support at 60 cents on the bottom end for time being and running into resistance around 70 cents. Let’s hope there will be some more decisive news coming out shortly.

Pima weekly export sales increased by a modest 2,400 bales for the current crop year, lifting total commitments to 445,900 b/c compared with last season’s 551,500 b/c. New crop sales increased by 2,000 bales to 14,200 this week versus last year’s 9,900 bales. While planting has already begun in the San Joaquin Valley last week, rain and colder temperatures today and expected for this weekend will interrupt growers’ activities. The longer-range forecast, however, is calling for clear skies ahead, which ought to facilitate plantings. Ideal weather conditions were also reported from Arizona, New Mexico and Texas, allowing planting activities to expand rapidly. Planting neared completion in the Yuma, Arizona area, and the earliest planted fields have been emerging, being up to good stands. Pima prices require continue to fall both for current as well as the new crop year. While the 2003/2004 production is being discounted in anticipation of an imminent step-2 subsidy payment, new crop prices likewise are falling despite concern over total availability next season, however, sellers understand that the spread between current and next season’s production cannot be too large in order to entice sales for prompt shipment. Short of any step-2 payment towards the end of this year again, it seems as though the opportunity to purchase ELS cotton at historically attractive prices is right now.

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