COTTON DIVISION

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

September 22 - 26, 2003

Once again New York cotton futures provided some considerable price action this week, as speculators continued to expand their long position while producers took advantage of higher values by consistently selling the terminal. After the combination of a strong stopper (Allenberg), triggered speculative buy stops and bullish-interpreted option strategies pushed prices to a new life-of-contract and 33-month high on Wednesday, New York took a breather on Thursday and Friday as speculators became seemingly exhausted. While Tuesday morning's speculative/hedge report showed a hefty speculative net long position of 47.3 percent from the previous week’s 41.5 percent, some market participants still felt it left room to the upside, providing them with the comfort that was needed to push values higher, however, the very same increase in speculative longs coupled with technical considerations convinced others to sell the market, ultimately expecting a setback down to a possible challenge of the previous week's low of 64.00 cents. One element of uncertainty for the bears was expected to materialize via the weekly USDA export report, which some feared may show once again strong sales into China despite the increase in US prices, yet their worries were unfounded as new sales amounted to a modest 45,600 b/c as of the week ending September 18 or 61 percent less than the previous week’s sales of 117,800 bales (both reports were released this week as a result of the 2-day closure of Federal offices in Washington D.C. last week). China had been noted as major buyer of US cotton during the week that ended September 11, when it purchased a total of 37,200 b/c despite the sharply accelerating prices,

which had been generally viewed as particularly helpful to the market. Actual exports for the past reporting week were also subdued as only 74,000 bales found their way to overseas shores or less than half of the previous week’s 150,400 bales. Nonetheless, expectations continue to run high that the US can set another export record this season with 12 mio. bales sold into exports, among others thanks to a once again, continuously weakening US Dollar. Sharply offsetting such achievement, should it be realized, are the consumption figures reported within the US, where the National Cotton Council reported on Friday that U.S. textile mills used cotton on a seasonally adjusted annual rate of 6.3 million 480-pound bales throughout the month of August. The Crop Progress Report as of Sunday, September 21 did not carry any major impact US cotton was once again rated at 21 percent “very poor to poor”, 30 percent “fair” and 49 percent “good to excellent”. Though the crop development overall continues to be delayed as the open-boll-figures confirm with 59 percent noted as “open” versus 73 percent a year ago and the five-year average of 75 percent, already 10 percent of the US crop have been harvested compared with 13 percent a year ago and the five-year average of 15 percent. It seems to be a fair assumption that weather permitted, US producers will be quick to catch up with their historic average.

Given the importance of China as major consumer for US cotton and US exports as one of the key components of current price development in New York, focus remains on Chinese buying patterns, the development if its own crop as well as their internal price movement. Short of any major, events, - detrimental or otherwise - in key producing countries, it seems conceivable to see prices retrace back down towards 64 cents, however, in the longer run, cotton is obviously enjoying plenty of demand and draw-down of former inventories to expect increasing price ranges.

Old crop US Pima continues to enjoy strong demand by overseas customers, seeking less expensive ELS fibre while inventories all over the world are constantly diminishing. For the week ending September 11, US Pima export sales arrived at 7,300 b/c, bringing the cumulative total for the season to 119,000 bales or 61,000 b/c less than at the same time last year. In the following week, merchants were able to place another 7,100 bales despite gradually increasing prices for US Pima in the interior, which is making a subsidy payment by October 2nd of this year that much more likely. Possibly spurred by such anticipation and the lack of many alternative growths, especially now that the announcement of Egyptian new crop prices is not anticipated until early November of this year, generated good interest from mill buyers around the globe. Viewed as direct consequence, CCC-stocks have been drawn down to 53,200 bales, representing a reduction of 5,600 bales during the past two weeks.

Meanwhile, defoliation efforts are well underway in many areas of the San Joaquin Valley, among others to prevent the spreading of white fly populations, which seemingly have been attacking fields more aggressively in the past 10 days. General harvesting is not expected until mid to late October, however, some farmers have already announced their intention to start earlier, choosing quality of their crop over quantity. Enjoying virtually ideal conditions for time being, growers in Arizona, Texas and New Mexico, will most likely wait for another week or two longer before entering their fields, permitting their top crop to mature further.

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