COTTON DIVISION

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

April 7 - 11, 2003

The market pretty much remained in the doldrums this past week with the exception of Thursday when futures prices were once again able to seize the bullish sentiment bolstered by supportive reports from the USDA. Most of trade’s attention has centered on the switching of the May contract into July as First Notice Day is less than two weeks away on April 24 and open interest for May still hovered around 40,000 lots earlier this past week. The weekly speculative/hedge released Tuesday morning did not provide much surprise as traders had been correctly anticipating only minor adjustments to the previous week’s 38.8 percent speculative net long position. Meanwhile, crop progress for the week ending April 6 showed the very young crop on target with 5 percent planted versus 6 percent at the same time last year and the 5-year average of 5 percent. The U.S. Department of Agriculture's monthly supply and demand report was overall deemed friendly on the world figures and neutral on the U.S. numbers. Small increases in production and imports were shown as boosting projected 2002/2003 U.S. supplies while production was raised 61,000 bales, reflecting USDA's March 21 Cotton Ginnings report. Imports were likewise raised 10,000 bales based on activity to date. Domestic mill use and exports were left unchanged from last month raising US ending stocks slightly to 6.3 million bales. The world cotton projections for 2002/2003 included lower production and higher consumption relative to last month’s figures. Production was

reduced mainly in India and Pakistan, partially offset by increases for the United States and Syria. World consumption was raised 725,000 bales, including increases for China, Pakistan, Egypt, and others, and reductions for India, Russia, and Turkey. Higher world trade estimates reflected strong import demand by countries such as China, and smaller increases for Taiwan, Thailand, and Mexico, partially offset by reductions for Brazil, India, and Russia. World stocks ended up at 36.6 million bales or 2.5 percent less than last month, which would be the lowest level since the 1994/1995 crop. The USDA weekly sales and exports report was equally supportive to the market albeit lower sales. New sales arrived at 151,600 bales or 57 percent less than during the previous week as well as 56 percent under the 4-week average. Actual exports, however, reached 357,800 bales, 2 percent above last week’s record breaking high and 27 percent above the 4-week average, which keeps the latest USDA export estimate of 10.8 million bales well on target.

Although not a stellar performance by the market this week, cotton values are holding up well under some considerable pressure, which still leads a good portion of the trade and the analysts to believe in gradually rising prices as we move forward.

Exports of US Pima continue strong. For the week ending April 3, the USDA registered sales of 7,600 bales for the current crop year and 7,500 bales of 2003/2004 crop. Cumulative sales for the present season have no jumped to 562,2000 bales, which represents a record high for US Pima. The increase in off-take has lowered ending stocks to about 342,000 bales, leaving the stocks to use ratio at 51.9%.

Moreover, on April 8 the USDA announced the sale of another 12,131 bales of 2001/2002 crop California Pima bales while simultaneously offering another 20,279 bales of both California as well as Texas and New Mexico old crop lots available for bidding until April 15, 2003. Prior to any new sales by the USDA, this leaves only 102,000 bales of forfeited 2001/2002-crop in government’s hands plus another 140,000 bales, which have not yet been forfeited, from the current crop year. Assuming that the 2001/2002-crop stocks will soon disappear based upon the recent success of USDA auctions, the availability of US Pima will be reduced to about 495,000 bales of 2003/2004 crop

cotton and potentially another 140,000 bales of the 2002/2003 inventory for a combined total of 635,000 bales or roughly 40 percent less than what ELS buyers were able to select from this past year. Meanwhile, the majority of growers especially in the San Joaquin Valley have been awaiting this weekend to plant their fields as the strong fluctuation in day- and nighttime-temperatures so far has not been conducive to early sowing. While it is simply too early to make any predictions concerning the upcoming crop, one needs to bear in mind that the room for any error is limited before the supply side of the equation will be severely affected.

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