April 24, 2003

Severe acute respiratory disease (SARS) infected the cotton market this week. Although no traders actually suffered from symptoms of the dreaded disease, SARS impacted trading on the New York Cotton Exchange as industry observers began to worry about decreasing cotton demand in China.

Consumers in China, fearful of contracting SARS, are reluctant to leave the safety of their homes. Therefore, analysts have come to the obvious conclusion that mill demand will be lower as consumer demand plunges, and as a result, less U.S. cotton will be exported to China, one of the United States' largest cotton customers. USDA's weekly export sales report figure seemed to reinforce the analysts' hypothesis.

The department's export sales report was disappointing to most market observers as it came in even lower than expected. For the week ended April 17, net upland sales of 96,900 bales were 56 percent below the prior week and 61 percent lower than the four-week average. Primary buyers included Turkey, India and South Korea.

Export shipments for the week at 225,400 bales were 36 percent less than the previous week and a 32 percent decline from the four-week average. However, the shipment figure was above the average needed to meet USDA's final marketing year figure as approximately 200,000 bales must be shipped each week to reach the target. China, again, was the major destination.

"The export sales figure was relatively weak, but the sales were made during a week in which futures prices were strong, the U.S. dollar was strengthening and foreign buyers may have held back for better opportunities," one market observer commented.

He also noted that the slowing sales may indicate world demand is slowing; however, it is now toward the end of the marketing year, and seasonally, this can be the case.

Another analyst pointed out that the export sales reported by USDA were made seven to 14 days ago, and the outbreak of SARS now could be showing some impact on the market. Cotton prices have risen nearly 20 cents since last fall on a combination of a shortage of cotton and an increased demand that has been driven largely by China.

"Therefore, the impact of SARS is critical, and the (cotton) market may take a worst-case scenario until it knows the full effects on the economy and China," the analyst said.

In other news, Cotlook indicated in its April world supply/demand report that its latest figures suggest cotton consumption would outweigh production by 2.2 million bales in 2003-04. The figure looks plausible to most in the market as several countries now are reporting lower cotton production expectations for the upcoming year.

For instance, Cotton Australia Ltd. confirmed that country's drought-depleted 2002-03 cotton crop will be down approximately two-thirds from the previous year. Additionally, recent rains across cotton producing areas have not been enough to replenish empty reservoirs, undermining the outlook for next year's crop which will be planted in September and October.

Meanwhile, cotton planting in the U.S. is well underway. Weekly state crop reports showed overall U.S. cotton planting was 12 percent complete, matching the five-year average and only two points behind last year. Planting in the Delta and Southeastern states lagged behind their five-year averages due to wet soils and continued rain.

Texas cotton aided the overall number with 18 percent planted by April 20 versus 16 percent the previous year and the five-year average pace of 14 percent. However, the soil temperature remains too cold for cotton planting in some parts of Texas.

On the spot cotton scene, producers' reluctance to sell at the current prices has continued to result in lower spot cotton sales. Online sales by Texas, Oklahoma and Kansas cotton producers for the week ended April 24 totaled 3,774 bales compared to the previous week when 5,426 bales changed hands. The average price received by producers selling their cotton online ranged from 38.55 to 50.28 cents per pound compared to the previous week's range of 47.94 to 49.71 cents per pound.