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April 20, 2007

(See attached file: PR070420.xls)(See attached file: PR070420.pdf)

Wheat futures oscillated early in the week as traders try to assess the effects of the Easter freeze on U.S. yields. From Informa Economics: “the historical track record for April freeze events suggests actual overall production losses are likely to be small or non-existent.” But reports from crop scouts continue to cause concern and the trade believes this year's freeze event was unique because the crop was more advanced than in past freezes. The USDA crop progress report showed a fall in conditions with 55% of winter wheat crop in good to excellent condition, down from 64% a week ago. Big drops recorded for major SRW states Arkansas, Missouri, Illinois and Indiana. Conditions in Kansas were downgraded again with 36% rated good or excellent, down from 55% last week and 77% two weeks ago.

Markets jumped on Thursday after Australian Prime Minister John Howard told reporters Australia faces an "unprecedentedly dangerous" drought, promising that without rain in the near future, irrigation water will be rationed. For the week, CBOT SRW nearby (May) futures rose 24 cents/bu, the KCBT ended up 18 cents/bu and the MGE was up 6 cents/bu. Corn futures ended down 9 cents/bu down from last week.

Price strength could also be found in speculation regarding tight Indian supplies, effects of dry weather in China and the EU, and Brazilian wheat acreage falling with an increase in winter corn plantings. The drought destruction in Morocco is more of a certainty with USDA forecasting an increase in imports to 3.5 MMT from 1.5 MMT this year. Inter-market spreading, buying wheat/selling corn, was also reported this week, evidenced by the fall in corn prices.

Export sales of 342,800 MT old crop and 38,500 MT new crop were within trade estimates. Export interest was reportedly light earlier in the week, but the spike in futures combined with astronomical freight rates has diminished it.

With SRW basis firmer this week at 16 cents/bu, up from option (no premium) last month, and futures much stronger, FOB Gulf SRW is $28/MT higher than a month ago. Despite SW showing continued export demand while SRW is not, the SW premium over SRW fell again this week to 97 cents/bu ($36/MT) down from $55/MT a month ago. The SRW premium to corn at the CBOT is $1.48/bu, up from 58 cents/bu on March 23.

Barge rates came down from last week with Minneapolis - NOLA at $20/MT, $13/MT (41%) lower than at the November close and $4/MT less than this week last year. Tariff rail rates are unchanged for the week, on the North Dakota - Houston (HRS/durum) route, rates are $41/MT (10%) lower than last year while the Kansas City - Galveston rate is 5% higher than this month last year. Secondary markets for grain cars are trading below 3-year averages and at a discount for most delivery periods through the September corn/bean harvest.

Ocean freight rates are very expensive and continue to rise as demand for grain and mineral transportation is resilient. The Baltic Exchange Panamax Index is at the highest level since 2004. At $48/MT, the PNW - Japan rate is $22/MT (85%) higher than April 2006 while Gulf routes are double rates paid this month last year.

Dollar weakness has led currency markets to new records. At $1.364/euro, the U.S. dollar extends a two-year low and is less than half a cent from a new all-time record low against the euro. On Monday, the yen hit an all-time low against the euro and a 7-week low against the dollar. The Brazilian real is closing in on the R$2.00/U.S.$ for the first time since February 2001, in spite of sustained intervention by Brazil’s central bank to prevent the currency from strengthening further.

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