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March 16, 2007

(See attached file: PR070316.xls)(See attached file: PR070316.pdf)

Highlights
Wheat futures markets are reacting more to outside markets than global supply and demand fundamentals. Grain markets were pushed lower earlier in the week as a result of a fallout in the U.S. 'subprime' mortgage market. Corn falling below $4/bushel (the first time since January) triggered a technical sell-off Thursday. CBOT SRW May delivery nearby futures netted a 16 cent/bu loss from last week, as did the KCBT. The MGE ended 11 cents down as CBOT corn fell 18 cents from last Friday's close. Wheat markets are expected to follow corn in the near term.

Ag Canada cut its 2007/08 production forecast, non-durum wheat now expected to decline by 15% and durum by 20%. Initial USDA U.S. spring planting estimates will be released on March 30. Private estimates for the U.S. HRS acreage decline range widely, from 6 to 15%. As one trader commented, "there are no bad choices this year for a North Dakotan farmer," as HRS, durum, barley, oilseeds, etc. are all profitable options.

Port of Duluth - Great Lakes to open the last week of March, about 2 weeks earlier than normal. EU demand is still lacking.

Durum prices are much stronger on the tightening world balance, likely also currently affected by the 3-week rail strike in Canada congesting logistics. Export prices from U.S. Gulf ports now range from $7.34 to $7.57/bushel ($270 to $278/MT).
Egypt passed on SRW in their tender this week, despite it being the cheapest F.O.B. offer, as soaring ocean freight made Russian wheat cheaper C.I.F. The Russian wheat was also reportedly already in Egyptian silos.

After nearly a year as the most inexpensive wheat in the world, the supply vacuum left by the Australian drought has kept U.S. SW demand strong, making it the most expensive offer in this week's Egyptian GASC tender. In October 2006 the SRW premium to SW was 61 cents/bu ($22/MT). Today SW is at a $1.10/bu ($41/MT) premium to SRW.

SRW basis prices have crumbled to 3 cents/bu over the CBOT May, down from 43 cents/bu in December and 25 cents/bu just 3 weeks ago. Basis in the deferred months is negative. Export interest remains very limited as Russia appears to have wheat available. Offers were also made of Canadian eastern SRW in the GASC tender.

HRS protein premiums in the PNW dropped precipitously, lacking availability of low protein grain.

Ocean freight rates finally leveled off this week, sitting at multi-year highs. The South American harvest and strong mineral demand from China are supporting the price strength. Pacific Ocean rates moved up $1/MT from last week to $44/MT for shipments from Portland to Japan, $21/MT (91%) higher than this week last year and $9 higher than last month. Rates in the Gulf are unchanged from last week, $30/MT higher than last year and $11 higher than February.

File Name
PR070316.xls
PR070316.pdf
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