COTTON DIVISION

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

June 23 - 27, 2003

This past week has been somewhat of a mixed bag, with prices moving more violently as traders are squaring positions, among others ahead of next Monday’s USDA spring acreage report. Improving weather conditions across the U.S. coupled with further reductions in domestic consumption and somewhat disappointing export sales/shipments led the market lower for the most part. Also, the fact that fewer than originally anticipated delivery notices were posted against the July position was said to give the market a more bearish connotation. As usual, sell-stops were hit and triggered on the way down exacerbating the move lower. The crop progress report released late Monday by the U.S. Department of Agriculture showed little improvement in conditions. As of last Sunday, 21 percent of the crop is in “poor and very poor” condition while 48 percent is in “good to excellent condition”. The crop is still behind its regular schedule for this time of the year as 34 percent of the crop squared, which was 10 percent behind the previous year and 12 percent under the five-year average. However, drier weather is forecast across the cotton belt this coming week and that should help improve conditions considerably. Drier and warmer conditions have been prevailing in the Delta and Southeast this week, which also ought to be reflected in next week’s crop condition report. Meanwhile, many traders had been expecting to see a significant reduction in U.S. domestic cotton mill use when the National Cotton Council releases its monthly report Thursday morning with most private estimates ranging from 6.8 million to 7.0 million bales. In comparison, in the month of May last year, U.S.

mill use was “still” 7.7 million bales of cotton. April's (2003) figure recorded usage of 7.1 million and was the fourth straight month that the mill use figures came in lower than the prior month. General cutback in business for mills and also extended downtime, which coincided with the Memorial Day weekend at the end of May, were given as reasons for the expected reduction. The continuing decline in domestic cotton use illustrates the increasing reliance of the U.S. on the export market as a home for its cotton. The consumption of cotton by domestic users has been deteriorating among others because of competition from increasing foreign textile imports that have been hitting the U.S. as well as relocation of American plants across its Southern border. In its June supply and demand report, the U.S. Department of Agriculture continued to highlight this trend when it adjusted its domestic usage estimate and its exports for the current marketing year. Domestic usage was reduced to 7.4 million bales and exports increased to 11.4 million. For the 2003/2004 season, the USDA estimated usage at 7.2 million and exports at 11.5 million b/c. The final figure released by the National Cotton Council for its mill consumption during the month of May showed U.S. textile mills using cotton on a seasonally-adjusted annual rate of 6.78 million 480-pound bales or right at the low-end of private estimates. Despite the sharp increase in last week’s step-2 rate to over 700 points, export sales and more importantly shipments as registered for the week ending June 19, were a little disappointing. New sales of 43,900 bales were 39 percent below the previous week and 59 percent under the previous 4-week average. Shipments of 214,900 b/c, though 2 percent higher than the week before, still came in 15 percent lower than the 4-week average. This week’s speculative/hedge report was also not capable of sparking much interest in the market as speculators had shifted their position as widely anticipated to a net long of 6 percent versus the prior week’s 2.2 percent net short.

Short of any major surprise on Monday (general expectations are calling for acreage between 13.8 – 14.2 mio. acres), the market seems destined for the near future to consolidate here, although the bias is clearly for higher values in time to come.

There is little fresh news surrounding the US Pima market available. While the crop in Arizona, New Mexico and Texas is progressing as anticipated for this time of the year, California temperatures have yet to find the ideal equilibrium between day- and nighttime temps. While another heat-wave is on its way for the coming days, which is beneficial in terms of the heat-units it will produce yet detrimental to the weaker plants on the field, last week’s temperatures were still somewhat cooler than producers would like to feel for this time of the year. Meanwhile, some merchants have returned to providing firm, new crop offers to their customers,

yet the majority is still withholding fresh offers until they believe to see clearer where this coming crop is heading. It is already evident that a good fall period will be required in September and October to let the crop mature properly and establish the quality buyers have become used to. At the same time, beneficial conditions at that time will define the ultimate seize of the crop, although there are few private observers left, who think that the US will produce more than 325,000 bales, even with nearly ideal conditions from hereon forward. Weekly export registrations for the week ending June 19 arrived at 4,100 bales for the current crop year or the seasonal total of 623,200 bales compared to 3,700 bales sold for the coming season, lifting the cumulative total to 61,400 bales.

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