COTTON DIVISION

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

April 28 - May 2, 2003

Last week Friday’s gains turned out to be short-lived as the short-covering rally that occurred that day was reversed during most part of this week as trade selling fell onto a vacuum of spec-buying. Triggering sell-stops the market quickly eroded further. Cotton prices on the New York Cotton Exchange have fallen over 5 cents in the past week and a half from a high of 60.75 cents scored on the July contract on April 21. Although this has been largely due to a technical retreat by the market with the massive liquidation by funds and speculators of their large long position, the market has also begun to factor in the negative sentiment related to China. Cancellation of existing contracts for purchase of US cotton coupled with the continuous scare of SARS could have a further negative impact. Fortunate for those who expected significant cancellation from China, this week’s USDA export report as of April 24 only reduced their purchases by 62,300 bales, still showing a net positive number of 48,400 bales. Though noticeably lower than in previous weeks, exports themselves remain strong 272,500 bales or 21 percent more than during the prior week and only 15 percent below the 4-week average. Funds still hold a large net long position and even though this has been reduced in the past few weeks, the last trading sessions have confirmed that trade buying is currently not sufficient to capture the level of selling by the speculators, reducing their positions. The weekly speculative/hedge report released on Tuesday morning showed that speculators as of the previous

Friday had reduced their net long position of the open interest to 41.5 percent, still holding a net long position of 30,698 contracts. The monthly Census figure of domestic cotton consumption was also unable to lift the spirits as U.S. textile mills used cotton on a seasonally-adjusted annual rate of 7.24 million 480-pound bales in March as announced by the National Cotton Council on Wednesday. March's figure was lower than the 7.64 million registered during March 2002. The NCC also revised its February estimate to 7.35 million, up slightly from the previous 7.29 million bales. This lower figure suggests that the U.S. Department of Agriculture may have to downwardly revise its U.S. consumption figures from the current estimate of 7.5 million bales on May 12, when releasing its monthly supply and demand report. The weekly crop progress report revealed that by now 18 percent of the anticipated acreage has been planted versus 12 percent the previous week, 24 percent at the same time last year and 19 percent based upon the five-year average. Noticeably behind their usual schedule are growers in California, where so far only 40 percent of the acreage has been planted compared to 81 percent last year and 64 percent as based upon the five-year average. Meanwhile, farmers in Arizona were able to catch-up, as now 58 percent of the acreage shows planted versus just 35 percent last week. The five-year average for this state runs at 57 percent.

Cotton prices are generally expected to take a while before recovering from their technical break that occurred this week. Fundamentals are also causing participants to favour the short side at this time, yet while the market appears poised to drift once again towards 50 cents, the overall expectation is for business to adequately pick up at that stage lifting prices back to their recent highs.

The USDA sold another 11,500 bales bringing the cumulative total for 2001/2002 crop sales to 158,232 bales so far. It is estimated that another 70,000 bales of the same crop year remain available for sale via auction of which the USDA is currently offering another 20,319 bales stored in California for sale by May 6, 2003. Meanwhile the conditions in California remain less than ideal as temperatures are unseasonably cool prohibiting the young plants from gaining adequate size and protection against the detrimental conditions. The fear of root rot has been added to the palette of grower worries as another front moving through the valley could release more rain onto the fields. Current private estimates are calling for max. 140,000 acres planted with Pima cotton in California with the daily decreasing potential should the weather not improve of producing about 300,000 bales by the end of this year. Adding another 30,000 acres from Arizona,

NewMexico and Texas as estimated by the USDA will only add another 60-70,000 bales for a total supply of 370,000 bales versus last year’s 649,000 b/c. It is therefore not surprising to see significant reluctance on growers’ part to offer any new crop cotton at this time, which is only overcome by bidding respectively higher prices for their upcoming production. For the week ending April 24 the USDA registered new Pima sales of 6,800 bales, pushing the cumulative total for the 2002/2003 crop to 585,000 bales while new crop sales increased by another 12,600 b/c to 44,400 b/c versus last year’s 18,600 bales. We continue to believe that while overall sales-volume for new crop Pima will fall well behind this year’s level, it nonetheless ought to outpace last year’s performance, as prices are on the rise.

• Previous Report