COTTON DIVISION

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

September 15 - 19, 2003

After rallying to a 33-month high or their highest level since December 2000 this past week, New York cotton prices offered a little for everybody as the market oscillated for most of the past 5 trading sessions. As one of the market’s main focus had been hurricane “Isabel” and its potential impact on cotton fields in North Carolina, the fact that the storm veered out further North, had turned US cotton prices considerably higher at first as traders bought the “rumour”, however, it also provided room for consolidation on the downside as traders were ultimately selling the “fact” once it became largely known that losses would not exceed 50-75,000 bales or less than originally feared. Profit-taking coupled with producer selling forced the market to give back some of the 7-cents gain it had accomplished just this past week as a result of production curtailments both in China as well as in the US. Adding to that the technical indicators, which had shown heavily overbought condition per RSI and the gap that extended originally from 62.91 to 64.75 cents and the market had little choice but to retract. The weekly spec/hedge report, released one day later than usual on Wednesday confirmed the heavy spec position, which as of last Friday had swelled to 41 percent of the open interest, up considerably from the previous week’s 22.8 percent. Meanwhile, crop conditions continue to deteriorate slightly as the weekly USDA report revealed (previous week’s data) with 21 (19) percent of the entire US cotton crop rated “very poor to poor”, 30 (31) percent as “fair” and 49 (50) percent as “good to excellent”. Open bolls were reported at 45 percent versus 61 percent a year ago and the five-year average of 64 percent. Despite the overall lateness of the crop, 8 percent of the crop has already been

harvested compared with 10 percent a year ago and the five-year average of 11 percent. The release of the weekly USDA export report just like the latest Commitment of Traders report has been postponed until Monday or Tuesday of next week as the federal government decided to close its Washington offices for a couple of days due to hurricane Isabel. Last week’s combined Upland and Pima sales had totaled 34,800 bales with exports of 120,600 bales.

The market still appears to be tempted to move towards 70 cents and possibly beyond in the longer run, however, for time being it remains restricted by the relatively large net long position held by speculators, producer selling at increasing price levels and last but not least the lack of its competitiveness in the export markets as values edge higher. Though prices have been moving in higher volatility throughout the past weeks, it is conceivable that prices will remain range-bound for a while between 64 and 67 cents for the trading-month of December until possibly next month’s USDA Production Report will shed further light on US and global supplies.

Little news emerged from the Pima producing states this past week. While the crop is maturing well all throughout, the lateness of the crop particularly in California remains of some concern. As insect control remains ongoing, some reports of whitefly infestation in the San Joaquin Valley have been circulating, however, the issue is generally being described as well under control and not a major problem. Meanwhile, producers in Arizona are expected to commence harvesting within the coming two weeks. Prices offered into the export markets remain largely unchanged while actual business is mostly restricted to the sales of 2002/2003 production. It will be interesting to see how many bales were sold during the last reporting week and how many bales are left in the CCC inventory.

The answers to these questions will hopefully become available by early next week once the USDA returns to its offices in Washington. Meanwhile, the majority of ELS buyers are awaiting the Egyptian opening, expected for Mid-October this year, before committing to potentially more significant purchases.

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