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A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3050

(March 21, 2002) COTTON: The cotton market continues to oscillate within the confines of a 5-6 cent trading range that dates back to November. Existing surplus supplies of cotton in the U.S. and abroad have counterbalanced expectations that the combination of an improving economic climate and reduced plantings in 2002/03 will make headway in providing greater balance to the world cotton supply/demand situation. Another factor that has kept the market treading water has been all the twists and turns of farm bill legislation and what ramifications the finalized bill will have on the cotton industry. Timing of the bill's passage is also a question that has greatly complicated planting decisions for producers and bankers given that full-scale planting is only weeks away. Some observers continue to believe the legislation can still be passed in time for implementation in the 2002 crop year, but we tend to think this window of opportunity is rapidly closing.

Exports continue to run at an impressive clip with shipments exceeding 230 thousand bales for the past ten straight weeks. While robust sales and shipment figures are not translating to higher prices, they are working to pare down the huge inventories of U.S. cotton. A string of positive economic reports is also bolstering the argument that textile demand and cotton demand should improve along with the rest of the economy. While these are certainly positive with respect to demand, the market may begin to focus more on next week's USDA Prospective Plantings report.

Our A.G. Edwards forecast for cotton plantings remains unchanged at 14.75 million acres compared to 15.8 million acres seeded in 2001. Our estimate gravitates toward the middle of trade estimates, reportedly between 14.5 million to 15.0 million acres. In February, the National Cotton Council projected cotton acreage at 14.735 million acres, basically in line with our estimate. We would expect anything below 14.4 million acres would be construed as friendly for cotton futures while anything above 14.8 million would be negative. USDA will release its plantings estimates on March 28th at 7:30 CST. This uncertainty with regards to the Farm Bill and 2002 cotton plantings has many traders unwilling to commit too aggressively to one side or the other.

We expect the market to remain range bound until more is known about the status of the Farm Bill and next week's plantings report.

 

Andrew Buderus

www.agedwards.com

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