COTTON DIVISION

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

April 21 - 25, 2003

The market plummeted to one-month lows this week before resurrecting itself as massive speculative and fund liquidation occurred as focus shifted towards a host of negative developments not the least poor exports, a weaker technical picture and beneficial weather across cotton planting areas especially in the southern U.S. This past week’s performance also highlighted once again the market’s volatility caused by the growing speculative long position combined with an uncertain global demand outlook for cotton. While the speculative position as announced on Monday of this week had once again grown to 43.5 percent of the open interest versus 38.5 percent the previous week, representing a net long position of 33,827 lots up from 30,159 lots the prior week, a correction of this overbought condition has been foreseeable. In addition, the A index remained largely unchanged this week, not following the few days the terminal market was actually able to squeeze out some gains, which was widely regarded as bearish. The continuous fear of what impact the outbreak of severe acute respiratory syndrome (SARS) may have on cotton consumption, especially in China, added to overall negative sentiment. Meanwhile, fieldwork in the US is well underway for the planting of cotton and although it is too early to know about any switching of crops into or out of cotton acreage, general conditions in the US are considered to be conducive to cotton plantings. The weekly USDA crop progress report showed that US cotton growers

on average continue to be in-line with private expectations. So far 12 percent of the entire estimated acreage has been planted versus 8 percent last week, 14 percent at the same time last year and the five-year average of 12 percent. One look towards the West, however, reveals obvious delays in the planting process, where Arizona with 35 percent is noticeably behind the 51 percent planted at the same time last year as well as the five-year average of 42 percent. The same observation holds true for California with its 30 percent planted as of April 21 versus 56 percent last year and 44 percent as measured over the past 5 years. Nonetheless, the market had a hard time shaking off bearish voices and remained in a defensive posture for most of the week, especially Wednesday and Thursday when continuous selling discovered speculators’ sell stops, forcing the market lower, which turned into a one-directional move, halted only by modest trade buying. The weekly USDA export report revealed mediocre sales, which came in lower than expected with only 96,900 bales sold for the week ending April 17, which was 56 percent below the previous week and 61 percent under the 4-week average. Actual shipments of 225,400 b/c came in also well below private estimates as they were 36 percent less than the previous week and 32 percent below the 4-week average despite a significant step-2 payment rate for Upland cotton.

Although the market is clearly displaying its inability to challenge the upside targets of 60.90 cents on July - the double top - and in the new-crop 63.00 cents for the trading month of December, cotton remains in a positive setup. The longer-term trend is calling for higher values, suggesting that breaks in cotton prices are to be bought.

Reviewing the situation of the upcoming Pima crop during the Western Cotton Shipper’s Association’s recent gathering in the heart of the San Joaquin Valley, it was evident that the mood had turned somewhat somber on growers’ part. The weather so far has not been cooperating as the frequent temperature changes during day- and night-time coupled with intermittent precipitation have kept many farmers out of their fields. While progress in Arizona, New Mexico and Texas appears to be on-track with roughly 25,000-30,000 acres combined allocated towards Pima, the situation in California is less encouraging. At this stage, it is estimated that only about 60 percent of the originally anticipated acreage of 170,000 acres, as per the USDA estimate released March 31, 2003 has found its way into the ground. The overwhelming majority of this acreage is made up by one large grower while the remainder of the grower community has yet to decide whether to still plant Pima or switch to the similarly attractive Upland and Acala varieties. While some fields will already require replanting, others have obviously not even yet been planted at all. Weighing the potential of yield losses on Pima versus the attractive cost structure of Acala and Upland seeds, may well sway many growers to abandon Pima acres in favour of the yet to be planted Upland varieties. Private estimates

currently call for less than 150,000 acres of Pima cotton for California this coming season, which would mean at an average yield of 2.5 bales to the acre roughly 450,000 bales for the entire US. Compared to this past season, such production would constitute a significant decrease from the 2002/2003-crop year. Respective price increases have already been announced and many farmers/merchants are not even offering at all or on a nominal basis only. One can only hope that offering levels will not jump too quickly as it may well silence interest from the historically non-traditional customers, who have absorbed a very good portion of US Pima in past months. Export sales for the week ending April 17 arrived at 6,400 bales, pushing cumulative sale for the season to 578,300 b/c with new crop commitments being increased by 3,600 b/c for a total of 31,900 b/c for the coming 2003/2004 crop, which compares to 14,100 bales at the same time last year. As the respective subsidy payment rate for US Pima turned lower and lower the USDA accepted bids on yet another 10,970 bales of 2001/2002 crop Pima while simultaneously offering the next 20,503 bales of last year’s Pima stored in California warehouses for sale until April 29. Considering the current lack of new crop offers, interest in upcoming Pima catalogues ought to remain very high.

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