COTTON DIVISION

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

November 18 - 22, 2002

This week’s market performance was very visibly torn between speculative buying and the rolling of December 2002 longs into March 2003, causing any significant advances to be met by producer- and merchant-selling, capping the market’s top-end performance. While the trading month of December experienced pressure as a result of long liquidation, speculators felt very much at ease in overall expanding their net long position, which had grown from 31 percent to 35.8 percent as of last Friday, November 15. This came very much as a surprise to many observers, who had rather anticipated a drop in the net position due to continued liquidation, occurring primarily during the early portion of the second week in November. Meanwhile, the weekly crop progress report issued by the U.S. Department of Agriculture supported the speculators’ move as general harvesting is still progressing behind its usual pace with 67 percent of the crop harvested versus 86 percent a year ago and the five-year average of 83 percent. Equally interesting to observe was the continuously widening of the December 2002/March 2003 spread from 275 to 298 and even to 303 points, which many traders viewed as bearish for the market, especially when considering its widening to as much as 325 points. Further fuel to the fire arrived on Wednesday in form of talk that China, as part of this country’s allocation quota, was buying cotton on the cash market, which caused a massive jump in prices that day. Thereafter, the market seemed to be back to trading somewhat closer to cotton fundamentals - a shrinking supply of better quality cotton coupled with a lopsided unfixed call position for March and beyond, yet still mediocre export business that remains to be sitting – in volume - right beneath the market. Although the step 2 certificate subsidy for the coming week will be raised to 4.17 cents per pound for cotton leaving U.S. ports or opened at domestic mills, most traders and analysts continue to complain that prices are still too high to improve sales and export data. The U.S. Department of Agriculture on Thursday morning released its weekly sales and export

data, which continue to lag and look increasingly unlikely to meet with the USDA's export figures for the season of 11 million bales. As of November 14, net upland sales of 157,600 running bales were 2 percent above the previous week and 29 percent over the 4-week average while exports of 159,600 running bales were 1 percent below the previous week but 29 percent above the four-week average, yet overall US commitments at this stage are still about 2.0 million bales behind the schedule estimated by the USDA. Although the well-known bearish factors influencing the cotton market presently are not to disappear any time soon, there remains an underlying optimism that prices will not have to linger at their current level forever. Timing, as always, is everything but if one is to believe some of the more knowledgeable analysts, come first quarter ’03, we may well see cotton prices advance more significantly.

US Pima sales continue at stable pace as for the week ending November 14 another 15,900 bales were sold, bringing the cumulative total to 262,600 bales. Commitments are expected to grow gradually at least until the USDA decides to sell its 2001/2002 inventory via auction, which is expected to occur by early next year, certainly changing the entire pricing structure as we see it today.

The harvest itself is virtually complete with farmers already occupying most of their time with shredding the stalks of their just picked cotton plants.  This year’s quality is once again earning high marks from the two USDA offices in both Visalia, California and Phoenix, Arizona. So far a combined total of 179,187 bales have been classed of which 99 percent received the Grade 1 or 2 classifications in California compared with 92 percent in Phoenix, where the Arizona, New Mexico and Texas crop is being evaluated. The average staple length in Phoenix was measured with 45.7 inches and 46.9 inches in California. Strength readings arrived at 38.9 grams per tex (gpt) in Phoenix and 41.9 gpt in Visalia while average micronaire results came in at 4.2 in Phoenix and 4.3 in Visalia. Fortunately, uniformity data is virtually identical in both classing offices with 85.6 in Phoenix and 85.7 in Visalia.

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