COTTON DIVISION

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

November 25 - 27, 2002

Cotton futures on the New York Cotton Exchange started the week off quietly as pre-holiday trading dominated the ring’s activity or lack thereof. The market was stuck trading within a narrow range and expectations were that trading would remain this way for the remaining days of this short U.S. work-week. Unfortunately, the release of overwhelmingly bearish data ultimately caught up with the market and pulled prices lower especially on Tuesday of this week. The U.S. Department of Agriculture's weekly crop progress report released on Monday afternoon showed that 77 percent of the cotton had now been harvested versus 67 percent last week and 90 percent a year ago, which shows that harvesting efforts are continuing to gain momentum and hopefully come to a successful conclusion shortly. Meanwhile, the weekly cotton spec/hedge report showed speculators holding a large net open long position, which had grown from last week’s 35.8 percent of the open interest to 39.1 percent. As a result, prices tumbled Tuesday on the execution of bearish strategies at play predominantly in the options pit,  with trade selling of March calls buying of put spreads, triggering trade selling on futures. Allowing for a completion of the negative picture, the U.S. Census Bureau reported its monthly consumption data for the month of October, which revealed that U.S. textile mills, on a seasonally adjusted basis, consumed cotton at the annual rate of 7.33 million 480-pound bales, which was down from September's upwardly revised estimate of 7.57 million bales and lower than the 7.58 million used in October 2001. Moreover, talk among market participants that China may not be buying its entire quota of U.S. cotton was also said to be bearish. So the market finished

this week off on Wednesday quietly as it began, leaving observers with nothing but a brief analysis, pointing towards a continuation of the gradually improving trading range. Though the downside appears to be limited given the once again growing attraction of current market prices when combined with the respective step 2 payment, the upside does not seem to be too promising just yet either with dull exports and modest domestic off-take. So caution should be exercised, as it is often at times like these that changes in the market’s behavior occur.

Movement, however, is seen in the US Pima market, which remains driven by good demand for nearby shipments, almost entirely due to the growing step 2-payment rate. Export sales, which will be published later this week, ought to show another decent wave of sale commitments into the overseas markets, a continuation of which is expected to last until the end of this year or until the USDA decides to sell its inventory via auction. Although the pace of sales may and should well continue at that time, leading to a significant reduction in US inventory-stocks, the crop year will change most likely from 2002/2003 to last year’s production. Quality of this season’s output remains extremely high with well over 95 percent of all bales classed so far, showing results of Grade 1 or 2. Although the weather conditions have allowed the steady progress of moving modules to the gins and bales to the ports, actual exports remain somewhat hampered by lower than usual efficiencies at the West Coast ports caused by the still to be addressed negotiations between the port authorities and the unions.

Due to the Thanksgiving Holiday our offices will remain closed on Thursday and Friday of this week. We wish everybody a Happy Thanksgiving.

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