The Rupp Report: 2009 – The International Year Of Natural Fibers

According to the Food and Agriculture Organization of the United Nations, 2009 will be the
International Year of Natural Fibers. In this exceptional time of excessive financial crisis,
natural fibers in general, and cotton in particular, are suffering on the world markets.

Dumping Prices

The turbulent development of the markets worldwide has had also distinct effects on sales of
raw cotton in the local range. Dumping prices for yarns from other markets has made it nearly
impossible for the local spinners to cover their supply. The prices for available cotton have not
completely been included in the downtrend of the quotations in New York, and consequently, here
have been large differences between the merchants’ offering prices and the ideas of the buyers.
Nevertheless, smaller quantities could be committed until the second quarter 2009.

Cotton prices dropped sharply in September. The decline during the first half of the month
coincided with the departure of investors from commodity markets, uncertainty regarding the global
economy and lack of demand from Chinese spinning mills. As the US financial system went into a deep
crisis in mid-September, cotton prices continued to decline along with other commodity prices.
Cotton prices then stabilized for a few days as confidence in financial markets was momentarily
restored, helped by government intervention. However, persistent problems with the US financial
system, and growing doubts regarding global cotton mill use in 2008-09 continued to exert pressure
on cotton prices in the second half of the month.

Production Declines

World cotton production is expected to decline by 6 percent in 2008-09, to 24.7 million
tons, resulting from a decline in world cotton area caused by increased competition from
alternative crops. The world yield is projected down slightly to 782 kilograms per hectare; this
would still be the second-highest yield to date. The projected decrease in world production in
2008-09 is driven by an expected fall of 1.2 million tons in the United States, to 3 million tons.
Production is also expected to decline in Turkey, Brazil and Egypt. However, cotton production is
projected up in Australia and Pakistan.

World Mill Consumption

World cotton mill consumption increased continuously between 1998-99 and 2006-07, rising by
8 million tons; but mill use was almost stable in 2007-08 at 26.4 million tons. On the other hand,
consumption is estimated to decrease in 2008-09 in Pakistan, Turkey, the United States, Brazil, the
European Union, Mexico, Thailand, Russia, Taiwan and the Republic of Korea.

Cotton mill use is forecast slightly up in China and stable in India. In spite of lower US
production, large accumulated stocks could maintain US exports around 3 million tons. World cotton
stocks are forecast to decrease by 11 percent to 10.9 million tons in 2008-09. The largest decline
in stocks, 1 million tons, is expected to take place in the United States.

Extra-Fine Cotton

A fall in production of world extra-fine cotton is expected in 2008-09. Production is
projected at 469,000 tons, down by 37 percent from the previous season. This production level would
be the lowest since the middle of the 20th century. Available supplies in producing countries,
including beginning stocks and production, are expected to decline by 26 percent to 768,000 tons,
the lowest since 2005-06.

Production is expected to decline in every producing country except India, including Egypt —
from 224,000 tons to 127,000 tons, the United States — from 185,000 tons to 100,000 tons, and China
— from 153,000 tons to 90,000 tons. Production is also forecast to be lower in Central Asia,
Israel, Peru and Sudan.

The decline in extra-fine cotton prices in 2007-08, combined with strong competition from
grains and, in the case of the United States, higher prices for irrigation water, pressed farmers
to switch to other crops in 2008-09. The Cotlook quote for American Pima averaged US$1.47 per pound
during the first two months of the 2008-09 season. This is the highest average since 1995-96. Then,
the quote averaged US$1.54 per pound during the first two months and US$1.70 per pound during the

Source: Bremen Cotton Report

October 22, 2008