COTTON DIVISION

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

October 7 - 11, 2002

Participants were looking ahead for the most part of this week to Friday's supply and demand data from the U.S. Department of Agriculture, which was expected to provide the sluggish market with a sense of direction. Exports this past week had been impeded by the now temporarily resolved labour issue along the West Coast ports, which was adequately reflected in the weekly export data. For the week ending October 3, net upland sales of 37,600 running bales were 31 percent below the prior week and 81 percent below the 4-week average. Exports of 101,300 bales, likewise, were 7 percent below the previous week and 19 percent under the 4-week average. Meanwhile, speculators had not been as active in abandoning their long position as some analysts had expected, eying a flat position, as the speculative net long position decreased only 3.9 percent to 9.3 percent as of October 4 from 13.2 percent the prior week. Traders at the same time had been concerned about harvest pressures on the one hand while watching deteriorating crop and quality conditions on the other hand. First, hurricanes “Isidore” and “Lili” caused disruptions only to be followed by further significant precipitation of as much as 5 inches especially in the Delta, northeastern Arkansas, northwestern Mississippi, western Tennessee and Kentucky during the latter part of this week. Early indications called for the US cotton crop to be reduced by as much as 200,000 to 300,000 bales, a number, which after the most recent rainfall can only have increased. Therefore, expectations for the monthly USDA data had been that production numbers would come in lower than previously reported. Last month’s

data had pegged the crop at 18.3 million bales with exports of 11.20 million, domestic usage of 7.9 million and ending stocks of 6.7 million. For October, all cotton production is forecast at 18.1 million 480-pound bales, down less than 1 percent from last month and 11 percent below last year's record high production.  Yield is expected to average 674 pounds per acre, down 1 pound from last month.  The reduced production is due to further deterioration of the crop in southeastern States, offset by favorable conditions in Texas and California.  Harvested acreage, at 12.9 million acres, was decreased slightly in North Carolina based on administrative data. The 2002/2003-world outlook included slightly lower consumption and trade.  World production was virtually unchanged from last month, as reductions for Australia, the United States, and Uzbekistan were about offset by increases for India, Syria, and Turkey.  Consumption was reduced mainly in South Korea and Brazil.  Exports were reduced for Australia, the African Franc Zone, the United States, and Uzbekistan, leaving world-ending stocks nearly 2 percent higher than last month at 39.83 million bales. Interestingly, for 2001/2002, U.S. ending stocks were calculated as supply minus use, pending further revisions in the stocks survey conducted by the Bureau of the Census.  The Bureau has indicated that it will publish a revision in late October, which still leaves the door open for a significant reduction of available supplies.

This month’s data was not sufficient to swing New York prices in either direction, instead, it appears we are in for yet more of the same range-bound activity between the low to high 40 cents for the spot month, which is supported by the technical analysis placing support for the December contract at 43.00 and 42.50 cents with resistance seen at 46.00 and 47.50 cents.

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