COTTON DIVISION

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

July 12 - 16, 2004

Cotton futures at the New York Board of Trade traded once again lower this week as both fundamentals as well as technical indications continue to drive this market lower. The USDA started the trade off with a bearish monthly Supply/Demand Report on Monday, increasing ending stocks in the US by some 15 percent or 600,000 bales to 4.5 million bales for the 2004/2005 season after increasing production to 18.0 mio bales and cutting exports by 200,000 b/c to 11.30 mio b/c while leaving domestic consumption unchanged at 5.80 mio bales. The lower planted area indicated in the June 30 USDA Acreage Report was more than offset by a lower abandonment level; abandonment was reduced based on favorable growing conditions to date, especially in the Southwest. Likewise higher production and beginning stocks are boosting 2004/2005 world cotton supplies relative to last month. Late-season adjustments have raised 2003/2004 ending stocks, mainly for Brazil, India, Mexico, and Turkey while production for 2004/2005 was forecast 1.0 million bales higher in China based on recent evidence of higher planted area, especially in the high-yielding far Western region. In addition to the United States and China, production also was increased in India, and Uzbekistan, but reduced in Australia and Greece. In response to the larger world supplies of 104.73 mio. bales, world consumption was raised only slightly to 100.16 mio. Bales from last month’s 99.86 mio b/c but world trade was reduced from 31.28 mio. b/c to 30.65 mio. b/c. Accordingly, world stocks increased to 37.79 million bales, up 7 percent from last month and about 15 percent above the beginning level. With global production figures now pegged for the new crop, trade figures are gaining in importance, especially the weekly USDA

Export Sales Report. In that respect, this week’s release became a disappointment as net Upland sales increased by only 185,400 b/c or 17 percent less than the previous week, albeit 23 percent above the prior 4-week average. More importantly, exports of 206,500 bales were 22 percent below the week earlier and 34 percent under the prior 4-week average, which was deemed as particularly surprising, given the strength of the recent US Step-2 subsidy payment. The speculators in New York meanwhile had increased the seize of their net short position to 35.4 percent, which was less than generally expected and left them with some additional capacity for further sales as evidenced during the days following the latest release. Completing the list of bearish news were the US crop condition figures, which showed 36 percent of all US cotton setting bolls versus 25 percent last year and the five-year average of 31 percent while 83 percent was squaring compared with 67 percent a year ago and the five-year average of 78 percent. The entire crop was rated as 10 (16) percent “very poor to poor”, 22 (31) percent “fair” and 68 (53) percent “good to excellent” (last year’s figure).

Looks like all that cotton was able to muster this week was a minor bounce, which successfully alleviated the oversold condition, however, still left the market in its current trading range, which will not be broken until it initially overcomes 48.50 in the trading month of December.

Progress of US Pima new crop production continues well ahead of schedule. California’s southern valley experienced daytime temperatures in the low to mid 90s with highs reaching the low 100s this past week while nighttimes were in the 60s to low 70s which provided ideal relief to the cotton plants. The northern cotton growing areas had daytime temperatures that reached the mid to high 90s and nights that were in the mid 60s. Overall good to excellent weather conditions prevailed over the entire Pima region of all four key US growing States. No precipitation was reported and insect pressure

remained light. Growers were concentrating on irrigation, pest control, and mid to late season fertilizer needs. Weekly exports as of July 8 arrived at a mediocre 1,400 b/c for the current crop and 1,300 b/c for the new season, which pushes cumulative commitments to 532,700 b/c for the present season and 49,800 b/c for the coming crop year.

• Previous Report