COTTON DIVISION

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

August 25 - 29, 2003

In relatively featureless and low-volume trade, the New York Cotton Market was still able to achieve gradually higher prices during this past week. As the crop is reaching one of its more critical stages of final maturity and currencies displayed higher volatility, most buyers kept to the sidelines, as they were lacking clear signals, convincing them to push prices significantly higher. Meanwhile the US crop conditions are deteriorating. As of Sunday, August 24, the US cotton crop was rated (last week’s figure) at 19 (16) percent “very poor to poor”, 30 (29) percent “fair” and 51 (55) percent “good to excellent”. Crop conditions declined in nine of the 14 states surveyed with the biggest decline, as expected, coming from Texas where the impact of hot and dry conditions is becoming more prominent. Traders noted that West Texas had not received rainfall for 57 days before 0.12 inches was recorded over the weekend. The USDA condition report also illustrated the lateness of the crop as 93 percent of the crop had set bolls versus 97 percent a year ago and the five-year average of 99 percent. Just 16 percent of bolls are open compared with the year ago and five-year average of 27 percent. The speculative/hedge report released Tuesday morning, though slightly bullish, was also not dramatic enough to cause a more severe reaction. Speculators were holding a net long position of 5.9 percent reduced from 9.6 percent the previous week, which in the eyes of most analysts to a large degree has been permitting this past week’s price advance. Another small boost to the market arrived on Thursday morning as the National Cotton Council released its monthly annualized mill use figure. The
 

June figure stood at 6.6 million bales while market estimates had pegged the July data to come in at around 6.8 million to 7.0 million bales. The final report showed domestic cotton mill consumption of 7.05 million bales for the month of July and this figure was said by traders to suggest that domestic mill use for the 2002/2003 season will be closer to 7.4 million bales rather than the U.S. Department of Agriculture's current number of 7.3 million in its August supply and demand report. The U.S. Department of Agriculture's weekly sales and export report also released on Thursday came in line with expectations, albeit somewhat shy of what is needed to further present sentiment regarding the potential of the various export markets for US cotton. Net upland sales of 99,600 running bales were 29 percent below the prior week and also behind the year-ago figure of 114,500 bales. Exports of 128,400 b/c were down 47 percent from the week earlier and 57 percent below the four-week average.

Weather remains to be one of the most dominant factors in the market in the next few weeks as the cotton crop heads toward harvest time. Attention in the U.S. will be focused on crops in the Delta and Southeast due to possible hurricanes as well as Texas due to its continuous drought conditions. While funds had waited for the market to conquer buy stops at 58.50 and then again 59.15 c/lb based on December ’03, the trade will continue to buy on the dips, though they are not willing to chase prices up, as that would prove to be detrimental to their exporting efforts.

The New York Board of Trade will be moving back to Manhattan this weekend to its new home in the New York Mercantile Exchange. Consequently, a new trading schedule for NYCE cotton trading has been implemented. From September 2, the trading session will run from 1030 to 1415 ET.(1430 to 1815 GMT).

As merchants and growers are gearing up to commence their firm offers of 2003/2004 crop Pima, this past week’s trading activity was still rather limited. Most bids for forward contracting were still rejected by producers as they calculate their possible yields with great skepticism. Weekly export sales nonetheless arrived at 4,600 b/c presumably of 2002/2003 production, bringing the cumulative total to 99,000 b/c for the 2003/2004 season or 67,000 bales less than at the same time last year. Meanwhile, the crop is still reported to be around a week behind schedule in California, which is an improvement thanks to the nearly ideal growing weather plants have enjoyed in past weeks. For Arizona, New Mexico and Texas, as of August

24, according to NASS, 89 percent of the crop was in “good to excellent” condition as hot weather also continued in these states. All eyes are now directed at the price level at which US suppliers will resume their offers while soon the attention will shift towards Egypt and their official opening prices. At the same time, one has to expect noticeable reluctance on the part of the mill buyers to accept the anticipated price increase for ELS cotton worldwide as yarn prices have not yet kept up with recent fibre price increases.

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