COTTON DIVISION

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

August 4 - 8, 2003

Cotton futures on the New York Cotton Exchange this past week seemed to trade in typical pre-USDA-Report fashion with the usual position-adjustments prior to next week Tuesday’s release of the monthly USDA Supply and Demand Report. While the trade community tends to expect somewhat supportive figures, due in part to the weather pattern in Texas, higher prices will prove to be detrimental to its key export business for time being. Meanwhile, speculators took advantage of the trade’s willingness to support prices by further reducing its net long position. Spurred also by a weaker technical picture and the remaining gap left on the December contract at 56.50, speculators took their position from 35.2 percent to 27.4 percent net long as of Friday, August 1. The USDA weekly crop progress report issued in Monday revealed a slight deterioration of the US crop as had generally been expected. While 16 percent of the entire crop was rated “very poor to poor” versus 14 percent the prior week, 53 percent were called “good to excellent”, which compares to 55 percent the previous week. Likewise, squaring but probably even more importantly setting of bolls is falling behind schedule as 69 percent of the US crop were reported as setting bolls for the week ending August 3 versus last year’s 83 percent and the five-year average of 84 percent. Aside from Texas, which has
 

fallen significantly behind its schedule, also South Carolina, Tennessee and Virginia recorded slower plant development for time being. Thanks to the relatively high step-2 payment rate (6.75 c/lb), export shipments during the last week of July, which coincides with the last week of the past season, arrived at 331,400 b/c, pushing total exports for the 2002/2003 season to 10,955,500 b/c, representing a marketing-year record high and were 7 percent higher than the previous year’s total of 10,267,300 b/c. Additional 1,134,900 bales of export sales from the previous season were reported as carried over into the new 2003/2004-season. New commitments under the weekly exports for the first reporting week of the new season arrived at 70,200 bales.

While the market has remained ambiguous about its direction this past week, expectations run high that the coming USDA report will provide further insight into key fundamentals. The lure to the downside right now appears to be limited to the gap commencing at 56.50 for December while reduced off-take is feared should the market propel itself significantly higher. Short of any unusual developments we suspect that the market has found a base around the mid 50-cent area from which it will gain strength in weeks to come.

US Pima Producers continued to cultivate, irrigate, and fertilize their cotton fields this past week. Blooms were prevalent and many bolls were forming. Temperatures continued overall very warm to hot throughout the week with some clouds and light rain reported in the San Joaquin Valley later in the week. Pima plants made normal progress

throughout the week. As of July 31, the USDA reported a total of 615,700 bales exported for the marketing year that has just passed, which represents an increase of 61 percent from the previous year. An additional 20,200 bales of sales were carried over into the new season while fresh sales during the week of 3,300 bales increased total commitments for the 2003/2004 marketing year to 88,200 bales or 65,300 b/c less than at the same time last year. It is safe to assume that for time being new sales registered for the 2003/2004

season are actually being fulfilled with production of the 2001/2002 or 2002/2003 season that has been previously redeemed out of the USDA Loan program. Actual new crop offers remain scarce, however, the few transactions that are being reported occur in the range between $1.05-1.10 per pound range, interior warehouse location, uncompressed for Grade 2, 1.7/16.

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