COTTON DIVISION

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

July 14 - July 18, 2003

 Cotton futures on the New York Cotton Exchange came under pressure this week as a number of bearish news hit the market after last Friday's muted reaction to the bullish U.S. Department of Agriculture's supply and demand report. Improving conditions for cotton worldwide coupled with a larger than anticipated spec net long position and never-ending questions concerning global demand forced prices ultimately lower. Private expectations had called for the speculative net long position to see an increase from 29 to 34 percent of the open interest versus last week's position of 23.8 percent, yet the position had actually grown to 37.1 percent. Hurricane “Claudette”, which had been previously cited as a potential threat to the crop turned out to be ‘beneficial’ as it improved critical subsoil-moisture for the coming crop. Conditions meanwhile continue to improve with 16 percent of the entire US crop rated as “very poor to poor” versus 19 percent the previous week, 31 percent as “fair” compared with 30 percent and 53 percent evaluated as “good to excellent”, which is 2 percentage points better than during the prior week. Also for the week ending July 13, a total of 71 percent of the crop across the US cotton belt was squaring versus 57 percent the prior week and 84 percent at the same time last year. The states of Texas, Missouri, Mississippi and Tennessee in particular were showing a more significant delay in squaring over past seasons. A very similar pattern can be seen in the percentage of the young crop setting bolls with Louisiana, Mississippi and Missouri trailing the national average, which as of July 13 lies at 28 percent compared with 18 percent the previous week, 38 percent at the same time last year and the five-year average of 39 percent. Meanwhile, the strength in

 the US Dollar once again brought back the question of demand for American grown cotton, which is of considerable importance given the rise in US exports and the dependency of the US market on such sales to overseas customers. While the step-2 payments have remained relatively high, export sales continued to build up with yet another 116,300 bales sold during the week ending July 10. Exports amounted to 230,000 bales, 17 percent below the previous week and 4 percent under the 4-week average, which brings cumulative sales for the season to 11,899.3 mio bales or above the current USDA estimate of 11.80 mio b/c. Noteworthy, however, were the sales for the 2003/2004 crop year, which came in at only 11,300 bales, lifting the cumulative total to 1,371.6 mio bales versus last year’s 1,800.6 mio bales. The drop in pace of sales may become worrisome, should the lack of demand not be overcome.

While speculators lifted prices during the last few weeks, they seemed to have, at least temporarily, run out of interest, and the question has become whether the range between 60 to 63 cents based December’03 is the basis for a more significant move higher or the ceiling. Today’s surprise run-up in the last 10 minutes of the trading session will need to be validated next week, yet our prediction would be for prices to remain locked in the aforementioned range while values ought to improve more significantly towards the fourth quarter 2003/ first quarter 2004.

The Supima Association this week completed its annual US Pima acreage estimate, which has proven to be quite reliable in past years. For the 2003/2004-crop year, the Association is predicting nearly identical figures with those released earlier by the USDA, including 150,000 acres for California, which had been the most debated figure of last as private estimates had called for fewer Pima acres committed in this state.

Based upon this data, total US Pima production for the coming season ought to approach 375,000 bales after all. Not a tremendous improvement in total availability, yet still given the sensitive nature of the ELS supply/demand equation, an advance that may reduce the degree of price increases previously  anticipated. Weekly exports for the present season grew by another 3,200 bales to 636,200 b/c total

while new crop sales came in at zero. Though still about 2 weeks behind schedule in California, the Pima crop is making satisfactory progress both in the San Joaquin Valley as well as in Arizona, New Mexico and Texas.

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