COTTON DIVISION

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

October 14 - 18, 2002

This week started off slowly and prices continued under pressure as the harvest is gaining momentum and weather related distractions became negligible. Low volume days were coupled with lack of fresh news, prohibiting market participants to take a more active role in the ring. Despite comments from William B. Dunavant in an open interview earlier this week, pointing out quality problems in the Mid-South and Southeast due to the torrential rains, citing lack of high grades from the region the market was only able to gather temporary steam. Mr. Dunavant estimated a lower U.S. carryover of 6.25 million bales as of August 1, 2003, which would be down from last Friday's USDA report, expecting 6.8 million bales. Private calculations have called for production losses especially in the Southeast in excess of 400,000-500,000 bales, which is providing credence to Mr. Dunavant’s prediction. Meanwhile, the USDA discontinued its publication of the much anticipated nationwide crop condition report due to an increase in harvesting activity and instead reported only the crop progress for US cotton with 30 percent harvested versus 37 percent a year ago and the five-year average of 41 percent.  However, the state most affected by “Isidore”, “Kyle” and “Lili”, Louisiana, provided its statewide analysis, which revealed 18 percent of the cotton crop was in a “poor to very poor” condition compared to 11 percent the previous week while 42 percent was in “good to excellent” condition compared to 45 percent the previous week. Temporarily

supportive to the market was also the rise of prices in other agricultural commodity markets as well as the surprising improvements in US equities. The CRB spot index closed higher in consecutive days while the Dow Jones moved above 8,200 again. Unfortunately, what supported the market also caused its subsequent move lower as both cocoa and coffee markets saw an increase in volatility towards the end of the week. At the same time China’s statistical bureau (SSB) estimated the country’s crop at 22.046 million bales, down from the previous season's bumper crop of 24.434 million. Yet US analysts were quick to point out that this estimate is higher than the 20.50 million bales projected last Friday by the U.S. Department of Agriculture in its monthly cotton crop production report. They also compared it with 21.36 million bales foreseen by Cotton Outlook. Historically the USDA always accepts the SSB numbers and higher production in China could mean a reduction in Chinese import needs and reduce world exports to the country, especially from the US. For the week ending October 9, however, US export sales reached 124,600 bales or three and one-third times the prior week and 6 percent above the 4-week average. Exports of 48,500 bales, however, were 52 percent below the previous week and 58 percent under the 4-week average. The fall of cotton prices on the futures market to a 5-month low of 42.44 cents on October 4 had been expected to have attracted buyers to U.S. cotton, and therefore the increase in export sales did not come unexpected.

With no clear view of supply and demand, cotton is stuck within a current trading range of 42.50 to 45.50 cents and there is no indication of any significant change in the near future.

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