COTTON DIVISION

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

September 23 – 27, 2002

Despite continuous worries over the impact of tropical Storm “Isidore” on the open cotton fields of the Southeast and the Mid-south as well and a decline of the speculative long position, the New York market was unable to move consistently higher this past week. The hurricane/tropical storm (up- and downgrading of “Isidore” occurred frequently this week), which previously struck across the Yucatan peninsula of Mexico with significant downpours and winds up to 120 miles per hour, was forecast to move directly across the Delta by Friday and into the weekend. If the forecast track remains true, the Delta could see further torrential rains that could lead to flooding and affect the open cotton bolls. Crop conditions as of last week, September 20 had remained virtually unchanged with gains in four states - California, Louisiana, Oklahoma and Texas - offset by losses in nine states - Alabama, Arizona, Arkansas, Georgia, Missouri, Mississippi, South Carolina and Virginia - which were all due to heavy rains. Meanwhile, the spec/hedge position, which stood at 18.2 percent just last week was lowered to 16.4 percent as of September 20, a rather surprising reduction which stood in contradiction to the general assumption that speculators may well have added to their longs and should have been around 20 percent. Weekly export sales came in slightly higher than expected with new commitments for the week ending September 19 reaching 200,100 running bales, 11 percent above the prior-week and the four-week average. Exports of 136,900 bales were 15 percent above the previous week but 3 percent under the four-week average. The monthly Census Bureau Consumption report revealed that during the month of August U.S. textile mills used cotton on a seasonally adjusted annual rate of 7.35 million 480-pound bales in August, which is well below July's figure of 8.67 million bales, and down from the 7.887 million registered during August 2001. Traders' private estimates had been ranging from 7.89 to 8.10 million bales.

The market continues to lack direction and remains torn between the known arguments. Little change seems in the wings for the near-term, however, futures prices should see an improvement once the pressure of the new harvest subsides. Most participants still cite as reason for the depressed price level the 2002/2003 ending stocks coupled with the anticipation of yet another significant crop for 2003/2004 if no further Farm Bill changes occur. In addition, the general malaise of the global economy, especially in the United States and Europe may well have a further detrimental impact on consumption, which even a weaker US Dollar cannot compensate.

American Pima news are scarce these days. The crop has been brought to a relatively early end this season and pickers will start to roll out early October at the Southern end of the San Joaquin Valley. First bales ready for shipment, however, are not expected until the end of October to allow proper time for the preparation of the ginning equipment and the drying of the fiber. Meanwhile, export sales continue at a stable but non-exuberant pace of 3,400 bales for the week ending September 19. Total sales now stand at roughly 182,000 bales or about 25,000 b/c less than at the same time last year. Despite this lack in significant demand, prices in the interior remain unchanged, while overseas offering rates are now getting under pressure due to the increased competition from Egypt. Although growers have no incentive to lower their asking prices due to the USDA Loan program, merchants can attempt to gamble with the step 2-payment rate, however, such gamble is extremely risky, especially in light of customers paying via letter of credit as the rate itself is tied to the week during which the cotton is physically shipped out of the country. Moreover, all warehouses have adopted a rule of charging significant surcharges should a customer wish to rush their shipment orders within a few days, an expense the shipper will have to consider when assuming the subsidy rate for a specific week. The price structure, though likely to trend gradually lower still, is not expected to change dramatically until the old crop cotton will be auctioned off come January of next year.

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