The Rupp Report: News From The Cotton World

World cotton production is forecast at 33.9 million hectares in 2008-09. This is a
less-than-1-percent increase despite the 14-percent increase in international cotton prices
projected for 2007-08. Cotton prices are not increasing as much as prices of most competing crops
in 2007-08, and these price relationships will affect planting decisions in 2008-09. Production is
expected to increase slightly in mainland China and India, remain stable in Pakistan, and decline
further in the United States.

Increase In The World Average Yield

Cotton production in the rest of the world is projected to rise by 5 percent to 11 million
hectares. A projected 4-percent increase in the average yield could lead world cotton production to
increase by 5 percent to 26.9 million tons in 2008-09. Global cotton mill use is projected at 27.5
million tons in 2008-09, only 1-percent higher than in 2007-08 because of the expectation that
cotton prices will remain firm. As a result, a significant gap between world cotton production and
mill use is expected to persist next season, resulting in a possible further decline in world
cotton stocks to 10.7 million tons — a decrease of 5 percent — at the end of July 2009.

World Cotton Trade

World cotton trade is forecast to be quite stable at 8.7 million tons in 2008-09. A small
increase in mainland Chinese imports could offset a decline in imports by the rest of the world.
The Chinese Ministry of Finance announced at the end of December 2007 that the duty applied to
sliding-scale duty import quotas — quotas supplementary to the regular 894,000-ton import quota
associated with the 1-percent duty — would vary from 5 to 40 percent in 2008, versus 6 to 40
percent in 2007. However, no openings of sliding-scale duty quotas for 2008 have been announced

World Cotton Production In 2007-08

The world production is estimated at 25.7 million tons in 2007-08, down 4 percent from last
season, whereas world cotton mill use is forecast up 2 percent to 27.2 million tons. The projected
gap between production and mill use of 1.5 million tons in 2007-08 implies an 11-percent reduction
in world cotton stocks to 11.2 million tons by the end of July 2008. World cotton imports are
forecast up 9 percent to 8.9 million tons, driven by expected larger Chinese imports than last
season — 3.2 million tons versus 2.3 million tons.

Exports from the United States, India and Brazil are expected to increase, resulting in
gains in market share for these countries. However, exports from Uzbekistan, the CFA zone in
Africa, and Australia are expected to decline.

The Cotlook A Index — produced by Cotlook Ltd., an England-based cotton news group —
averaged 69 US cents per pound in the first five months of 2007-08, 10 cents higher than during the
same period of the previous year. The Bremen Cotton Report Secretariat, using the ICAC Price Model
2007, forecasts a season-average Cotlook A Index of 67 cents per pound in 2007-08 — the 95 percent
confidence interval is between 61 and 72 cents per pound. The main variables in this model are the
stocks-to-mill-use ratio in the world-excluding-China and the stocks-to-mill-use ratio in China.
The projected price increase in 2007-08 is the result of an expected significant decrease in the
stocks-to-mill-use ratio in the world-excluding-China from 58 percent in 2006-07 to 53 percent in
2007-08. This price forecast takes into account the average Cotlook A Index between August and
December 2007.

January 15, 2008