COTTON DIVISION

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

July 28 - August 1, 2003

Cotton futures on the New York Cotton Exchange began the start of the new marketing year by closing at their lowest level in seven and a half weeks. This past week provided little if no excitement to the bulls as the market closed consistently lower with the exception of last Monday. Limited trading volume typical for this time of the year, coupled with anticipation for the market to find some direction, possibly from the upcoming USDA Supply/Demand report to be issued August 12, kept most participants on the sidelines. Likewise, improving crop conditions as reported by the USDA in its weekly crop progress report and negative news on the domestic consumption front in the US shied the last few buyers away. As of Sunday, July 27, 55 percent of the U.S. crop was rated in “good to excellent condition” while 14 percent was in “poor to very poor” condition. The crop's progress is still behind its usual pace for this time of the year, however, gradually catching up with 54 percent of cotton bolls set versus 70 percent a year ago and against the five-year average of 72 percent. However, 89 percent of the crop is squaring, which is comparing favorably with 93 percent a year ago and a five-year average of 94 percent. The weekly speculative/hedge report, released Tuesday morning revealed only minor changes with speculators’ net long position of 35.2 percent versus last week’s 38.8 percent, however, this position was considered too large by some and adjustments were made accordingly, especially in preparation of the month-end close. Earlier Wednesday, the National Cotton Council placed U.S. cotton textile mill use for June 2003 at 6.56 million 480-pound bales. This was down sharply from the 7.94 million registered in June 2002 and down from the 6.76 million estimated in May of this

year. Although not friendly, the figures were not as bad as some had feared. Adding to the woes of mills was, however, another U.S. textile company Wednesday bowing to the pressure of the domestic industry caused largely by competition from foreign textile imports. Pillowtex Corp., citing a severe liquidity crisis, closed its 16 textile manufacturing and distribution facilities and said it will file for Chapter 11 as soon as practicable. In a press release Wednesday, the maker of home fashion products said it doesn't have cash available to continue operating and terminated 6,450 salaried and hourly workers. "Due to soft consumer demand, the intensity of foreign competition, industry over-capacity and downward pricing pressure in all of our categories, the company simply cannot operate profitably in the current environment and with our current business model," Pillowtex said. Weekly export sales for the week ending July 24 were also not very supportive as new sales for the current crop year arrived at only 58,700 or 61 percent below the prior week and 42 percent under the 4-week average. Exports amounted to 338,500 bales or 9 percent more than during the previous week and 28 percent over the 4-week average. Accumulated total shipments for the present season now stand at 10.624 mio. bales and it is well possible that shipments during the last week of July will push total exports to over 12.0 mio bales or 400,000 b/c more than the current USDA estimate for the 2002/2003 season.

A weakened technical picture, position squaring by speculators, who had consistently increased their net long position during the month of July, the release of too many bearish articles and traders’ expectation of further gaps to be filled on the downside has kept New York under pressure. It seems only logical to assume that this development will then, once again, also form the base for the next rally once we see the next few positive indicators, which are probably closer than some seem to anticipate.

According to the California Crop-Weather report on July 20, ninety-seven percent of the state’s Pima crop was squaring and sixty-nine percent was setting bolls. Daytime temperatures have stayed consistently above one-hundred degrees all week. Meanwhile, one-hundred percent of the Arizona cotton was squaring and eight-five percent was setting bolls according to the Arizona Crop-Weather report on July 20. Most of the crop was in “good to excellent condition.” Pima cotton in New Mexico and far west Texas was in mostly “fair to good condition” according to the New Mexico Crop-Weather report with ninety-six percent of the crop squaring and sixty-eight percent setting bolls. Pima cotton plants have made normal progress throughout all regions. As expected Pima sales for this past reporting week, however, very rather slim as only an additional 400 bales were committed to overseas clients bringing the cumulative total for the

season so far to 636,700 bales of which 611,000 bales have already been exported. The current USDA estimate of 635,000 b/c is therefore within reach and should be achieved within the last reporting week of the 2002/2003 season. Most suppliers are still withholding firm offers of new crop Pima, while the significant increase in asking prices has kept the majority of buyers on the sidelines as well. Pima of this past crop year, currently held in the USDA loan inventory (90,000 b/c remaining as of July 29), is being gradually redeemed as it currently provides the best source for high-quality bales at somewhat feasible prices. More aggressive offers are not expected until the fate of the 2003/3004 crop is becoming a little clearer, which may well take another month or two.

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