COTTON DIVISION

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

December 16 - 20, 2002

Despite the upcoming holidays cotton futures on the New York Cotton Exchange closed consistently higher throughout the week. Speculators as well as trade houses decided to join forces, pushing prices further as fresh physical business prompted more aggressive hedging. Likewise, speculators added to their net long position, increasing it from 34 to 36 percent this week once the key level of 50 cents had been proven to become a key support level. There was clear momentum to the upside albeit a wider trading range was established in anticipation with the Christmas and New Year’s Holiday. The U.S. Department of Agriculture's weekly sales and export data, though lower than during the previous week still proved that US cotton is still very much in demand. Net Upland export sales totaled 211,900 running bales or 35 percent below the previous week and 7 percent under the 4-week average yet in-line with general expectations. Meanwhile, Cotlook Ltd.'s Cotlook Outlook for December showed that their estimate for 2002/2003-world production had been lowered by 199,000 metric tons to 19,122,000. The continuing drought in Australia accounts for the single largest reduction as per Cotlook’s review while the conflict in the Ivory Coast and lower yields in other countries were expected to result in a lower figure for the African Franc Zone. Meanwhile, in the U.S., the figure was reduced because of lower yields in the Southeast. The consumption figure at the same time was increased by 83,000 metric tons due to continuously sharp increases in spinning activity in China. The report confirmed that the deficit of production relative to consumption

has now risen to 1,873,000 metric tons. The new higher margin requirements issued by the New York Board of Trade that came into effect earlier this week had little impact on the market. The initial margin per spec hedge contract will now be $1,330 with maintenance of $950 while per hedge/member contract the margin and maintenance will be $950.   

As previously stated, despite still plentiful supplies and selective increases in demand, prices for cotton are still expected to gradually return to the 60-cent level any unforeseen weather pattern barred.

US Pima sales continue at stable pace with yet another 13,600 bales sold during the week ending December 12, pushing the season’s cumulative total to 373,200 bales or 75,000 bales more than at the same time last year and only 100,000 bales shy from the current USDA export estimate. Meanwhile, ginning operations are running 2 to 3 shifts per day to process the fresh fibre as quickly as possible. Growers are plowing their fields, preparing them for new plantings come April of next year. Most analysts seem to agree that US Pima acreage this coming season will not change dramatically, any unforeseen problems barred. General expectations are calling for a minor decrease of 10 percent in acreage or a reduction in production of roughly 50,000 bales to just below 600,000 bales. Reasoning behind this reduction are the yields experienced for California Acala cotton this year, which beat even the record high for US Pima. Considering the lower planting cost for Upland cotton, some farmers may well favour Acala varieties as a result. Sale prices remain stable for US Pima, under the usual consideration of the known step-2 value, and are expected to remain at the current level until last year’s production currently held by the CCC will be auctioned off.

• Previous Report