COTTON DIVISION

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

June 30 - July 3, 2003

Seemingly all it took for this week’s cotton price acceleration was the release of a rather neutral US Cotton Planting Report, tropical storm “Bill” and the gradual increase in the speculative net long position, which gave the market the technical improvement it has long waited for. The question that now remains on everybody’s mind though is whether the fundamentals will ultimately provide a further catalyst to propel prices higher? On Monday of this past week, the USDA announced that all cotton plantings in the US for 2003 are expected to total 13.9 million acres, down fractionally from last year and down roughly 330,000 acres from the March ‘03 planting intention report. It was estimated that Upland cotton producers planted 13.7 million acres, virtually unchanged from 2002 while the acreage committed to American-Pima cotton was calculated at 176,000 acres, down 28 percent from the previous year. Many growers east of the Mississippi River revised their spring intentions and devoted less acreage to cotton as persistent wet weather across the south delayed seedings, forcing growers to convert to alternative crops. Texas and California growers on the other hand increased their Upland cotton acreage from a year ago after a rather successful 2002-production season. None of the above figures include the anticipated acreage-loss in Texas, which is estimated to total near 1.1 million acres, causing a possible production loss of 1.5 million bales. In addition, the market also had found support from tropical storm “Bill”, which passed over parts of Louisiana and Alabama though its impact

appeared minimal. The weekly speculative/hedge report released on Tuesday, showed that as of last Friday the net speculative long position grew from 6.0 percent to 8.8 percent of the open interest, in part as a result of moving averages turning higher and speculators paying attention. Additional support for the market came from the International Cotton Advisory’s monthly report, in which the organization is pegging worldwide 2003/2004 cotton consumption at 21.08 million tons, or 66.8 million bales, up by 0.5 percent. More importantly world cotton stocks for the coming season were revised down to 38 million 480-pound bales, the lowest in nine seasons, although global cotton production for the new season was estimated to hit 94.4 million bales, the third largest on record. The weekly USDA export report was also viewed as friendly to the market as new sales for the week ending June 26 totaled 64,800 b/c, a 27-percent increase over the prior week yet 35 percent under the previous 4-week average. Shipments for the week arrived at 242,900 bales or 9 percent more than during the previous week and 1 percent over the prior 4-week average.

While the market did not receive any further impetus during this abbreviated trading week, the catalyst for higher prices questioned above may come in form of the monthly supply and demand report, which will be released by the U.S. Department of Agriculture on July 11. Lower production or increased consumption would add further weight to the slowly growing herd of bulls.

In its analysis this month, the USDA estimated American-Pima planted acreage to arrive at 176,000 acres, a decrease of 28 percent from last year. In its analysis, California accounts for 150,000 of these acres, down 29 percent from a year ago and down 37 percent from 2001.

The reduced acreage, according to the USDA, was a result of over supply and weak prices yet also cool and wet weather, delaying some of the California planting by more than 2 weeks in April of this year. Those growers, who had planted before the poor weather began, were forced to replant a substantial amount of acreage while others, who had intended to plant Pima before the poor weather began, switched to upland or to alternative crops. Since many local observers disagree with the acreage figure the USDA arrived at for California, it will be interesting to see, how the government office will analyze the seize of the coming harvest in its first production estimate, scheduled to be released on August 12 of this year. The crop itself is progressing well under nearly ideal growing conditions in most locations.  Plant growth is good in many cotton fields, however, poor growth was reported in a few areas where the crop was still

behind by two to three weeks due to the cold and wet spring, according to the California Crop-Weather report.  Entomologists were carefully monitoring rising insect populations, and farmers were applying pesticides where needed. Physical demand remains repressed as a result of nominal offers, reflecting producers’ reluctance to commit additional tonnage at this time. Weekly export sales showed a minimal increase in sales to overseas customers. While an additional 6,400 b/c were committed for the current crop year, bringing the cumulative total to 629,600 b/c, only 2,300 bales of new crop sales were registered for the week ending June 26. Mostly nominal quotes continue to circulate among the trade and widespread firm offers are not expected for another 3-4 weeks.

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