COTTON DIVISION

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

November 11 - 15, 2002

The market originally took its direction this week from the release of the USDA Domestic and Global Supply and Demand report, which was published on Tuesday. All US cotton production was forecast at 17.8 million 480-pound bales, down 1 percent from October and down 12 percent from last year's record high production.  Yield is now expected to average 665 pounds per harvested acre, down 9 pounds from last month as growers in Alabama, Georgia, and the Atlantic Coast States were continuing to see the results of adverse weather that has affected their season.  Harvested area, at 12.9 million acres, was unchanged from October 1 but 7 percent below last year. The 2002/2003 U.S. cotton supply and demand projections included lower supplies and disappearance, with ending stocks unchanged from last month. Beginning stocks were reduced nearly 200,000 bales, reflecting final 2001/2002 stock-data released by the Bureau of the Census.  Forecast production likewise was reduced about 250,000 bales to 17.8 million bales, mainly reflecting poor weather in the Southeast.  Unfortunately, on the demand side of the equation, domestic mill use was also reduced, due to the weaker than anticipated recovery in recent monthly mill use rates.  The export forecast was cut to 10.8 million bales, down 200,000 bales from both last month and last season as export sales currently lag year-ago levels by about 25 percent; however, this month's reductions in key foreign crop estimates indicate that U.S. sales are likely to strengthen in months to come. Meanwhile, the world supply and demand situation for 2002/2003 includes lower production and consumption compared with last month; trade figures were revised down slightly from 29.91 million bales to 29.45 million bales while ending stocks were revised up marginally from 39.83 million bales to 40.0 million b/c.  With respect to production, a 1.0-million-bale increase in China's crop and a smaller increase for Tajikistan were more than offset by reductions in Pakistan, the United States, Greece, Uzbekistan, Turkmenistan, Brazil, and Côte d'Ivoire.  Similarly, consumption was raised 500,000 bales in China, due to strong growth in yarn production, but this increase was more than offset by reductions for the United States, Uzbekistan, Indonesia, Egypt, and others.  World trade was reduced by 1.5 percent based on weaker demand in importing countries. In further statistical news, the Crop

Progress report this week showed that US Cotton was still only 59 percent harvested versus 79 percent a year ago and the five-year average of 77 percent. The spec/hedge report released early Tuesday, however, revealed that even at times of apparently abundant supply, markets can well move higher. The report showed that as of last Friday, speculators had accumulated a net long position of 31 percent of the open interest, up 6.5 percent from the previous week. The number was far lower than expected but this was attributed to last Friday's expiration day, which saw a large number of calls executed. Speculative liquidation and the rollover of the December contract into March ‘03 was expected to place pressure on the market. However, some suggested that the lower net long position showed that the speculators still had some buying power left, which proved to be correct when looking at Friday’s price advance.

Cotton prices are destined to undergo the same scenario we have already seen in some of the other softs such as cocoa and coffee, where in recent months, speculators threw all common sense in the wind and simply started going massively long, pushing prices consistently higher despite an uninterrupted and in some cases excessive supply chain. Futures’ prices in cotton as well seem poised to move higher, though likely in an erratic manner, considering the global economy question remains largely unresolved.  

For the US Pima crop all key data of this week’s crop report was left unchanged with total production remaining at 635,000 bales derived from California estimated to harvest 570,000 b/c off 209,000 acres with 1,309 pounds of yields, Texas with an estimated production of 37,000 b/c picked from 18,000 acres showing 987 pounds of yield, New Mexico producing 14,000 bales off 7,000 acres with 960 pounds of yields and Arizona with also 14,000 b/c yet off 7,400 acres and only 908 pounds of yield. Meanwhile, interior spot prices have remained unchanged for a good while now, causing the step-2 payment-rate under the ELS competitiveness program to calculate higher and higher with each passing week. Buyers are gladly taking advantage of this discount as the weekly export report once again revealed for the week ending November 7, during which  a total of 14,600 bales were sold, bringing the cumulative total to almost 250,000 bales, which is now surpassing the level at the same time last year.

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