Weekly Cotton Market Review

MEMPHIS - Jul 8/05 - SNS -- The USDA released its latest review of cotton market conditions in the United States, reviewing conditions through the week ending 6 8.

Average spot cotton quotations were 103 points 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 50.28 cents per pound for the four-day week ending Thursday, July 7.  The weekly
average was up from 49.25 cents per pound for the previous week and 46.61 cents for the corresponding
week a year ago.  Quotations ranged from a high of 51.06 cents on Tuesday, July 5 to a low of 49.60 cents
on Wednesday, July 6.  The New York October futures settlement price ended the week at 54.15 cents per
pound, compared to 54.47 cents a week earlier.

The USDA announced on July 7 that the Adjusted World Price (AWP) was 43.72 cents per pound, and
for the period July 8 through July 14, the Loan Deficiency Payment (LDP) rate for cotton will be 8.28
cents per pound, the Extra Long Staple (ELS) Competitiveness Payment for Pima cotton will be 76.19
cents per pound, and the User Marketing Certificate Rate (Step 2) Payment for cotton will be 9.63 cents
per pound.

Southeastern markets.  Spot cotton trading was slow.  Supplies and demand were light.  Local prices
were steady.  Producers in Alabama forward contracted a light volume of cotton for around 225 to 275
points off NY December futures, FOB car/truck (Rule 5, compression charges paid).  All contracts were
for base quality (color 41, leaf 4, staple 34, mike 35-36 and 43-49, strength 26.5 to 28.4, and uniformity
81) with no premiums paid for qualities better than base quality and government discounts applied.
Contracts included additional discounts for strength 24.5 and lower, uniformity below 79.9, and
extraneous matter.  Domestic mill buyers inquired for a light volume of color 41, leaf 4, and staple 34 for
nearby through September fill-in needs.  No foreign mill business was reported.
    Timely rain showers fell across much of the Southeast early in the period.  A few dry pockets in
Alabama benefited the most from the moisture.  Weed pressure was a problem in some areas as herbicide
application has been hampered by weather.  Storms from the remnants of tropical storm Cindy pushed
through Alabama and north Georgia late in the reporting period causing localized flash flooding and
strong wind gusts.  Scattered showers and thunderstorms lingered over north Georgia and the eastern
Carolinas late in the period.  No significant crop damage was reported.  The crop remained two to three
weeks late.  Hot and dry weather could bolster plant growth and enable the crop to progress at a more
rapid pace.  Hurricane Dennis was projected to make land fall near the Alabama-Florida line early in the
next reporting period.

South Central markets.  Spot cotton trading was slow.  Supplies and demand were very light.  Local
prices were steady.  Mixed lots of color 61 and better, leaf 5 and better, staple 33 and longer, mike 36-49,
strength 25-30, and uniformity about 81.5 sold for 48.25 cents per pound, FOB car/truck (Rule 5,
compression charges paid).  Buyers for domestic mills purchased a heavy volume of 2005-crop cotton of
color 41, leaf 4, and staple 34 for first through fourth quarter 2006 delivery.  Agents for foreign mills
purchased a light volume of 2004-crop cotton of color 41, leaf 4, and staple 36 for prompt shipment.
Other purchases included a moderate volume of 2005-crop cotton of color 31 and better, leaf 3 and better,
staple 36 and longer for second and third quarter 2006 shipment.
    Scattered thundershowers moved through the North Delta during the reporting period, bringing much
needed moisture to isolated parts of Arkansas and Tennessee.  Rainfall accumulations ranged from one to
three inches.  Cooler temperatures combined with recent rains gave stressed plants a brief respite from the
extremely hot and dry conditions.  More rain will be needed before soil moisture levels return to normal.
Lay-by operations and applications of plant growth regulators were slowed in those areas that received the
heaviest rainfall.  The Bootheel of Missouri remained hot and dry.  The excessively dry conditions that
have persisted throughout the mid-south have resulted in a decline in the overall crop condition.  Insect
pressure from plant bugs was light and easily controlled throughout the region.  The crop condition also
declined in the South Delta under fair growing conditions.  Widely scattered rain fell mainly in the
southeastern region of Louisiana, missing large areas in the cotton-producing regions in the northwest,
central, and northeastern parts of the state.  The central and southern cotton-producing areas in
Mississippi received much needed rainfall.  Pesticide applications continued to control weeds and insect
infestations in Mississippi and Louisiana.

Southwestern markets.  Spot cotton trading was inactive in the East Texas/Oklahoma market and
moderate in the West Texas market.  Supplies remained light in east Texas/Oklahoma and moderate in
west Texas.  Demand was light.  Local prices were higher.  Domestic and foreign mill activity was
inactive.  Crop conditions were rated mostly fair to good in Kansas, Oklahoma, and Texas.  The
percentage of the crop setting bolls was slightly behind the five-year average, according to the NASS
Crop Progress report released on July 5.

Mixed lots of color 41, 42, and 52, leaf 3-5, staple 31-34, mike 27-49, and strength averaging about 28
traded in east Texas at 42.25 to 44.00 cents per pound, FOB car/truck (compression charges not paid).  A
light volume of color 42 and 43, leaf 3 and 4, staple mostly 32 and 33, mike 28-33, and strength averaging
25 sold for around 37.25 cents, same terms as above.
	The condition of the crop in the Upper Coastal Bend was mostly good to very good and would
benefit greatly from a general rain.  Insect pressure was light and easily controlled.  Central Texas
remained dry and caused many producers to begin irrigating.  Dryland cotton has begun feeling the effects
of the lack of moisture.  The crop made good progress in the Rio Grande Valley.  Insect pressure was light
and control measures were applied as necessary.  Limited defoliation was underway in earlier planted
fields.  Widespread defoliation should begin in a couple of weeks.

A moderate volume of color 41 and better, leaf 4 and better, staple mostly 33 and longer, and mike 33-42
traded in west Texas at 41.50 to 43.00 cents per pound, FOB car/truck (compression charges not paid).  A
light volume of color 41, 32, and 42, leaf 3 and 4, staple 35 and longer, mike mostly 33-37 sold for
around 42.75 cents, same terms as above.
	Strong thunderstorms and gusty winds moved through west Texas mid-week.  Rainfall accumulations
ranged from a one to three inches, which will help improve growing conditions.  Recent rains and
accumulated heat units have enabled the crop to catch up.  Earlier planted cotton was rapidly approaching
the blooming stage.  Producers were concerned about the drought situation and were irrigating to avoid
plant stress.


Western markets.  Trading of spot cotton was inactive in the San Joaquin Valley (SJV).  Supplies and
demand were light.  Local prices were higher.  No domestic mill activity was reported.  A very light
volume of Acala cotton, color 31, leaf 3 and better, staple 35 and longer, and mike 35-49 was
purchased by mill buyers in India, Japan, and Pakistan for nearby shipment.  The crop continued to
make good progress.  Many fields in Tulare, Kings, and Fresno counties were in the first bloom stage.
Some producers in southwest Kern County were contemplating whether to use growth regulators to
keep vegetative growth in check.

Spot trading of Upland cotton in the Desert Southwest (DSW) was inactive.  Supplies and demand
were light.  Local prices were higher.  No forward contracting was reported.  Domestic mill activity
was very light.  Foreign mill agents in China and Japan purchased a moderate volume of color 31, leaf
3 and better, staple 35 and longer, and mike 35-49 for nearby shipment.  The crop continued to make
good progress under ideal weather conditions.  Insect pressure was light.  Shedding was reported in
some fields but producers were managing with proper irrigation practices.

American Pima spot cotton trading was inactive.  No forward contracting was reported.  Inquiries and
sales for 2005-crop cotton were slow.  This was attributed to the uncertainty of the Step 2 program,
yields, and producers’ willingness to wait until the new crop enters the marketing channels.  The crop
continued to progress throughout the DSW and SJV.

Textile mill report.  Domestic mill buyers inquired for a light volume of color 41, leaf 4, and staple 34
for July through September fill-in needs.  Demand was best for color 41, leaf 4, staple 34, mike 35-49,
and strength 26-28.  A light volume of color 42, leaf 4, and staple 35 was purchased for
August/September delivery.  Mill buyers purchased a heavy volume of 2005-crop cotton for January
through December 2006 delivery.  Most mills operated on a five to seven day schedule.  Inquiries from
foreign mill agents were light.

Production Equal to Consumption in 2005/06
World cotton production is forecast to fall below 24 million tons in 2005/06, down 2.4 million tons but
still the second largest crop on record, according to the International Cotton Advisory Committee.  World
consumption is expected to reach an unprecedented 23.8 million tons in 2005/06, 550,000 tons more than
in the current season.  With China (Mainland)’s imports projected to more than double during 2005/06,
climbing to 2.8 million tons, world cotton trade is forecast to surpass 8 million tons for the first time.
These market fundamentals suggest that the season-average Cotlook A Index will be 65 cents per pound
in 2005/06, 13 cents more than the average expected for 2004/05.  Initial projections for 2006/07 indicate
that production will rise to 24.7 million tons, slightly above consumption.  The season-average Cotlook A
Index is expected to remain between 60 and 70 cents per pound for a second season.
    Attention continues to focus on the direction of China (Mainland)’s policy regarding cotton imports
and textiles and apparel exports and its potential influence on the market.  After the elimination of all
quotas on textiles and apparel trade among WTO members on January 1, 2005, Chinese exports in the
largest import markets, the U.S. and the EU, skyrocketed.  China (Mainland) concluded an agreement
with the EU, whereby a new quota system will come into effect on July 20, 2005 to limit the annual
growth in exports of various categories of textiles and apparel to the EU.  The Chinese Ministry of
Commerce will issue export licenses based on companies? exports during the previous 12 months.
    The U.S. is changing its export credit guarantee programs effective July 1, 2005, and the U.S.
Administration is working with the Congress to change the Step 2 program for upland cotton to comply
with WTO rules.  In addition, the American Pima competitiveness payment formula will be changed on
August 5, 2005.  These changes are not expected to affect the volume of U.S. exports.

Forward contracting of 2005-crop cotton.  Upland cotton growers in the United States had booked
about four percent of their expected acreage by the end of June this season.  This was below the five
percent booked through the same period last year.  Contracting has been most active in the southeastern
states where about 10 percent of the crop was under contract by the end of June and compares with 12
percent a year earlier.  South central states' growers had forward contracted three percent, compared with
less than one percent in 2004.  In the southwestern states, two percent of the crop had been booked, down
from four percent last year.  No acreage for forward contracted in the western states by the end of June
this season and last year.  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’s
Cotton Program.

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STAT News Service