Weekly Cotton Market Review

MEMPHIS - Sep 3/04 - SNS -- The USDA released its latest review of cotton market conditions in the United States, reviewing conditions through the week ending 8 3.

September 3, 2004

Spot cotton quotations averaged sharply higher than the previous week, according to the USDA,
Agricultural Marketing Service’s Cotton Program.  Quotations for the base quality of cotton (color
41, leaf 4, staple 34, mike 35-36 and 43-49, strength 26.5-28.4, uniformity 81) in the seven
designated markets averaged 49.16 cents per pound for the week ending Thursday, September 2.
This was the highest weekly average since the week ending June 24, 2004, when the average was
49.44 cents per pound.  The current weekly average of 49.16 cents was up 175 points from 47.41
cents last week but down 415 points from 53.31 cents for the corresponding week a year ago.
Quotations ranged from a low of 45.18 cents on Friday, August 27 to a new daily high of 51.11
cents on Thursday, September 2.  The New York October futures settlement price ended the week
at 54.00 cents per pound as compared to 48.40 cents last week.  The NY December futures
settlement price ended the week at 54.58 cents as compared to 49.08 cents last week.

The USDA announced on September 2 that the Adjusted World Price (AWP) was 42.74 cents per
pound and for the period September 3 through September 9, the Loan Deficiency Payment (LDP)
rate for Upland cotton will be 9.26 cents per pound and there will be no User Marketing Certificate
Rate (Step 2) Payment for Upland cotton and no Extra Long Staple (ELS) Competitiveness
Payment for Pima cotton.

Southeastern markets.  Spot cotton trading was moderate.  Supplies were light.  Producer
offerings were moderate.  Producer interest in selling what was left of their 2003-crop cotton was
good.  Demand was good.  The local trading basis was steady for base quality cotton (color 41, leaf
4, staple 34, mike 35, 36, and 43-49, strength 26.5 to 28.4, and uniformity 81).  Local and New
York futures prices were sharply higher.  Mixed lots of mostly color 41 and better, leaf 4 and better,
staple 33 and longer, and strength 26 and higher sold early in the period for 49.00 to 50.00 cents per
pound, FOB car/ truck (Rule 5, compression charges paid).  Recaps containing the same qualities
traded late in the period for 52.00 to 52.50 cents, same terms as above.  Similar lots with a high
percentage of staple 33 sold at a 100-150 points discount.  Producers in North Carolina and north
Alabama sold a light volume of 2003-crop cotton out of the CCC loan for equities of three to three
and one-half cents.  Mill buyers made inquiries for a light volume of 2004-crop cotton for
November 2004 through August 2005 delivery.  Buyers for domestic mills purchased a light
volume of 2003-crop cotton for prompt through October delivery.  Agents for foreign mills
purchased a light volume of 2003-crop cotton for prompt shipment and a similar volume of 2004-
crop cotton for November 2004 through July 2005 shipment.
    Tropical Storm Gaston made landfall near Charlestown, South Carolina and moved up the
eastern seaboard.  Reports indicated minimal damage to the cotton crop in the area.  Rainfall totals
from this storm ranged from two to six inches in northeastern South Carolina, eastern North
Carolina, and Virginia.  Fields were saturated and had slowly begun to dry.  Scattered showers fell
across the Southeast bringing as much as two inches of rain to parts of south east Alabama,
southwest and central Georgia, and the Carolinas.  Hurricane Frances was approaching the
southeastern coast.  Although the path of the storm was uncertain, landfall was expected along the
central Florida coast on September 4 or 5.  After landfall, effects of the storm are expected to be felt
throughout much of the Southeast.  Defoliation in south Alabama and Georgia was halted late in
the period and will resume after the storm passes.
    Limited defoliation was reported in north and central Alabama, central and south Georgia,
North Carolina, and Virginia.  A small amount of cotton was harvested.  A few gins reported
receiving their first modules during the period.  Most gins will wait until power demand charges go
down before ginning any cotton.  Rates decrease somewhere around the middle of the month
(September 15-20).  According to the NASS Crop Progress report for the week ending August 29,
approximately 54 percent of the cotton had bolls opening in Virginia, 34 percent in North Carolina,
30 percent in Georgia, 20 percent in South Carolina, and 18 percent in Alabama.

South Central markets.  Spot cotton trading was moderate.  Demand was good.  Supplies
continued light but producer offerings were heavy.  Local prices were higher.  A moderate volume
of mixed lots of color mostly 41 and better, leaf 4 and better, staple 33 and longer, mike 43-52,
strength 26.5 to 28.4, and uniformity averaging about 80.5 sold for about 50.00 to 51.00 cents per
pound, FOB car/truck (Rule 5, compression charges paid).  A heavy volume of color mostly 31 and
better, leaf 3 and better, staple 34 and longer, mike 43-49, strength 28.5 to 30.4, and uniformity
averaging about 81 sold for about 51.75 to 52.50 cents, FOB car/truck, same terms as above.
Producers booked a light volume of 2004-crop cotton on option-to-purchase contracts with equity
values from four to five cents.  No purchases by agents from foreign mills were reported.
    The Delta experienced warmer weather for the first time in several weeks. Limited defoliation
was underway in portion in portions of Arkansas, Mississippi, and Louisiana.  Cooler temperatures
in past weeks delayed defoliation in many parts the region.  Producers who planned to carry their
crop for several weeks into September continued insecticide applications to control late season
pests.  Rainfall totals varied across the region, ranging from more than four inches in Missouri, up
to two inches in portions of Mississippi, Tennessee, and Arkansas, and three-fourths of an inch up
to two and a half inches in Louisiana.  According to the NASS Crop Progress report for the week
ending August 29, the fraction of the crop that had open bolls improved slightly compared to the
previous reporting period but continued to lag about one week behind normal.  Missouri was the
farthest behind with 12 percent of bolls open compared to a five-year average of 33 percent.
Arkansas was the closest to its five-year average at 14 percent bolls open compared to the five-year
average of 32 percent.  The overall crop condition remained unchanged from last week.

Southwestern markets.  Spot cotton trading was active in the East Texas/Oklahoma and West
Texas markets.  Supplies were moderate.  Demand was good for color 32 and better, leaf 3 and
better, and staple 34 and longer.  Local and New York futures prices were higher.  In the East
Texas/Oklahoma market, a light volume of south Texas 2004-crop cotton of color 31 and better,
leaf 4 and better, staple 34 and longer, and mike 37-52 traded for around 48.25 cents per pound,
FOB warehouse.  A moderate volume of 2004-crop cotton containing color 31 and 41, mostly leaf
3 and 4, staple 34 and longer, and mike 35-55 traded in the south Texas market for around 51.50
cents, FOB warehouse.  A light volume of west Texas cotton of mostly color 21, leaf 3 and better,
and staple 33 and longer traded for around 45.00 cents, FOB car/truck (compression charges not
paid).  A light volume of 2001, 2002, and 2003-crop cotton of color 31 and better, leaf 2 and better,
staple 35, and mike 35-51 traded for around 47.00 cents, same terms as above.  A moderate volume
of 2003-crop cotton of mostly color 41 and better, leaf 4 and better, staple 34 and longer, and mike
32-51 traded late in the period for around 52.00 cents, same terms as above.  Merchants received
inquiries from foreign mill agents for color 41, leaf 4, and staple 34.  Due to the recent rise in the
NY futures prices, foreign and domestic mill buyers were hesitant to make any new sales.
      Harvesting was in full swing in the southern part of south Texas and was increasing rapidly in
the north.  The USDA Classing Office in Corpus Christi has classed over 544,000 bales through
September 2.  The Panhandle of Texas experienced cooler weather that slowed plant growth.
Scattered rain showers were mostly beneficial.  Cotton plants continued in mostly good to excellent
condition.  Temperatures were five to 10 degrees below normal for most of the week.  According to
the NASS Crop Progress report released on August 30, 20 percent of the bolls were opening and 92
percent of the crop was in fair to excellent condition.  Oklahoma had 21 percent bolls opening and
the condition of the crop was mostly fair to good.  Cooler than normal temperatures slowed plant
growth and warmer temperatures were needed.
	
Western markets.  Spot cotton trading of Upland cotton was inactive in the San Joaquin Valley
(SJV).  Supplies were light.  Demand was moderate for color 31, leaf 3, and staple 36.  No forward
contracting or option-to-purchase business was reported.  According to the NASS Crop Progress
report for the week ending August 29, 40 percent of the cotton bolls were opening, compared to 30
percent for the previous week.  Open bolls were evident in many areas.  The condition of the crop
was rated 30 percent good and 70 percent excellent.  Hot, dry weather conditions continued to
benefit the growth and development of the cotton crop.  The plants made steady progress under
ideal growing conditions.  Daytime highs were in the 90s to lower 100s for the entire period.  Fields
were irrigated and treated for aphids and whiteflies.  Preparations for defoliation continued.
Producers continued to get equipment ready and harvesting was expected to begin in one to two
weeks.

Spot cotton trading of Upland cotton in the Desert Southwest (DSW) was inactive.  Supplies were
light.  Demand was very light.  No forward contracting was reported.  According to NASS, 60
percent of the bolls were opening and the condition of the crop was rated 97 percent fair to
excellent.  Temperatures were below normal and daytime highs were in the upper 80s to lower 90s.
Up to one-quarter of an inch of rain was reported in the Gila Bend cotton growing area.  Harvesting
was expanding rapidly.  The USDA Classing Office in Phoenix has classed approximately 4,800
bales for the week ending Thursday, September 2.

American Pima spot cotton trading was inactive.  Supplies were light.  Demand was light for 2003-
crop cotton of color 2, leaf 2, staple 46, and mike 35-49.  Inquiries for new-crop cotton from
foreign agents representing mills in India, Pakistan, and Thailand were moderate.  Mills continued
to wait for new-crop cotton to enter marketing channels before making any additional purchases.
Pima plants made good progress under excellent growing conditions in the SJV.  Plant
development in Arizona slowed due to cooler than normal temperatures.  The condition of the
western Pima crop was good to excellent.  Cooler than normal temperatures continued to slow plant
growth in Texas and New Mexico, where crop conditions were mostly fair to good.  Warmer
weather was needed.
	
Textile mill.  Mill buyers purchased a light volume of 2003-crop cotton for prompt through
October 2004 delivery.  Demand was very good for color 31, leaf 3, staple 35 and longer, mike 37-
46 with averages of 40-44, and strength averaging 27 and higher.  Demand was moderate for color
41, leaf 4 and better, staple 33 and 34, mike 35-47, and strength averaging 27 and higher.  Mill
inquiries increased for 2004-crop cotton with a moderate volume of cotton booked for September
2004 through August 2005 deliveries.  Demand was best for color 41, leaf 4, staple 35 and 36, mike
35-49 with averages of 40-45, and strength averaging 28 and higher.  Most mills operated on a five
to six day production schedule.

According to the International Cotton Advisory Committee, Supply and Demand Prices were
Responsive.  The Cotlook A Index averaged 68 cents per pound in 2003/04, a six-year high.
Higher prices are boosting world cotton area by an estimated 8% in 2004/05.  The harvest has
begun in the northern hemisphere without incident, and the world yield is forecast to climb to a
record of 663 kilograms per hectare in 2004/05, up 26 kilograms from last season.  As a result,
world production is forecast up 13%, from 20.5 million tons last season to a record of 23.1 million
tons.  This would be the largest year-to-year increase in absolute terms since 1984/85.
    Expectations of rising stocks and of lower imports by China (Mainland) in 2004/05 caused the
Cotlook A Index to fall from 75 cents per pound in January 2004 to 52 cents per pound in August
2004.  World cotton consumption in 2004/05 will be stimulated by lower prices, as cotton is
currently price competitive with polyester.  Mill use is forecast up 400,000 tons, nearly 2%, to a
record of 21.6 million tons this season.  For the fifth consecutive season, China (Mainland) will
capture most of the increase in world mill use.  Cotton mill use in China (Mainland) is projected to
increase to 7.5 millions tons in 2004/05, up 400,000 tons, or 5%, from last season.  Mill use in the
rest of the world is projected unchanged at 14.1 million tons, the same as in 1998/99, when
consumption in China (Mainland) was 4.3 million tons.
    The shortfall between production and consumption in China (Mainland) is expected to shrink
by one million tons this season from an estimated 2.2 million tons in 2003/04.  However, depleted
stocks, including government reserves, need to be replenished.  Chinese imports are expected to
decline from a record of over 1.9 million tons in 2003/04 to 1.5 million tons this season.
    Despite record consumption, world ending stocks are projected to increase from 7.8 million
tons last season to 9.2 million tons in 2004/05.  Market fundamentals suggest that the season-
average Cotlook A Index will decline to 52 cents per pound in 2004/05, sixteen cents (24%) below
the average in 2003/04.

Forward contracting of 2004-crop cotton.  Upland cotton growers in the United States had
booked about 5 percent of their expected acreage by the end of August this season.  This was the
same as last year.  Contracting has been most active in the Southeastern states where about 14
percent of the crop was under contract by the end of August and compares with 10 percent a year
earlier.  Southwestern states' growers had forward contracted about 4 percent, compared with 2
percent in 2003.  Approximately one percent of the South Central cotton acreage had been booked,
compared with 6 percent last year.  Contracting has been the least active in the Western states
where less than one percent of the crop was reported under contract by the end of August and
compared with less than one percent in 2003.  These estimates were based on the National
Agricultural Statistics Board's June Planted Acreage report and informal surveys made by the
USDA, Agricultural Marketing Service, Cotton Program.

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STAT News Service