Cotton Economic Outlook

National Cotton Council

Mid-Year Board Meeting

July 9-12, 2006

0

10

20

30

40

50

60

70

80

90

100

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

$/Barrel

Forecast

W. Texas Crude Oil Price

Global Economy

Solid performance in the first half of 2006

Weakening expected in the second half High energy prices, rising interest rates, cooling

housing market

UN currently estimating ’06 growth at 3.6% Similar to last year’s level

Change in U.S. Real GDP

Percent

-2

-1

0

1

2

3

4

5

6

7

8

00 01 02 03 04 05 06

Billion Dollars

236.4

127.3

-158

-376 -412-318 -296

-337

-423-500

-400

-300

-200

-100

0

100

200

300

00 01 02 03 04 05 06

US Federal Budget Surplus

2006 US Planting Intentions

2005

Actual

2006

USDA

Percent

Change

Southeast 3,030 3,355 10.7%

Mid-South 3,950 4,205 6.5%

Southwest 6,279 6,800 8.3%

West 716 580 -19.0%

Total Upland 13,975 14,940 6.9%

ELS 270 336 24.3%

All Cotton 14,245 15,276 7.2%

50

55

60

65

70

75

80

85

Jun

-07

Jun

-14

Jun

-21

Jun

-28

Jul-

06

Jul-

12

Jul-

19

Jul-

26

Au

g-0

2

Au

g-0

9

Au

g-1

6

Au

g-2

3

Au

g-3

0

Sep

-06

Sep

-13

Sep

-20

Sep

-27

Oct

-04

Oct

-11

US Cotton Condition Index

10-Yr Hi

10-Yr Lo

‘04 (855 #/ac)

‘05 (831 #/ac)‘06

US Cotton Production

Million Bales

0

5

10

15

20

25

30

96 97 98 99 00 01 02 03 04 05e 06f

US Cotton Retail Market

Million Bales

0

5

10

15

20

25

96 97 98 99 00 01 02 03 04 05e 06f

Domestic

Imported

US Cotton Textile Imports

Million Bales

0

2

4

6

8

10

China India Pakistan NAFTA CBI Others

02-04 Avg 2005 2006

Million Bales

0.3

0.4

0.5

0.6

0.7

0.8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2004 2005 2006

Monthly US Cotton Mill Use

02468

101214161820

Au

g-0

5

Se

p-0

5

Se

p-0

5

Oct

-05

No

v-0

5

De

c-0

5

Jan

-06

Fe

b-0

6

Ma

r-0

6

Ap

r-0

6

Ma

y-0

6

Jun

-06

Jul-

06

US Export Performance

Shipments

Outstanding Sales

US Cotton Use

Million Bales

0

5

10

15

20

25

96 97 98 99 00 01 02 03 04 05e 06f

Mill Use

Exports

Million Bales

-10

0

10

20

30

40

50

60

96 97 98 99 00 01 02 03 04 05e 06f

Net Imports Production Use

China Cotton Supply & Use

Beginning Stocks 54.0 53.0Production 114.1 114.4Imports 43.7 44.0

Mill Use 116.8 121.8Exports 43.3 43.4

Ending Stocks 53.0 47.5Stocks-to-Use Ratio 45.4% 40.0%

World Supply and Demand

2005/06 2006/07

Beginning Stocks 5.5 6.5Production 23.9 20.5Imports 0.0 0.0

Total Supply 29.4 27.0

Mill Use 6.0 5.5Exports 17.0 16.6

Total Offtake 23.0 22.1

Ending Stocks 6.5 4.9Stocks-to-Use Ratio 28.3% 22.2%

US Supply and Demand

2005/06 2006/07

Cotton Stocks-to-Use

Million Bales

0%

10%

20%

30%

40%

50%

60%

70%

95 96 97 98 99 00 01 02 03 04 05e 06f

U.S.

World less China

86

79

72

59

5357 56

69

5457

42

0%

10%

20%

30%

40%

50%

60%

70%

95 96 97 98 99 00 01 02 03 04 05 06

Percent

30

40

50

60

70

80

90

100Cents/Lb

Stocks/Use (World less China) "A" Index

Cotton Stocks/Use vs A(NE) Index

Factors to Watch Bullish

Dry conditions in W. Texas & parts of SE and Delta

Demand in excess of 120 million bales

Declining stocks in 06/07

Uncertainty over China’s stocks

Bearish More acres in ’06

05/06 ending stocks in US

Can economic growth be sustained?

China’s trade position & quota allocations

MerchantsMerchantsGinnersGinners CottonseCottonseeded

ProducerProducerss

CooperativesCooperatives

WarehousesWarehousesManufacturersManufacturers