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October 26, 2007

(See attached file: PR071026.pdf)(See attached file: PR071026.xlsx)

Highlights
  • A statement by Russian officials that wheat export tariffs will not be increased brought on two limit-down closes this week. Lacking other fundamental news, technical traders referred to a "head and shoulders" chart pattern as foundation for a sell-off, despite support from other commodities, especially crude oil and gold. The CBOT opened yesterday below $8/bu, the first sub-$8 trade since August. Closing today at $8.00/bu, nearby CBOT futures are off $1.62/bu (17%) from its high on September 28. From last Friday, CBOT December futures are down 56 cents/bu, the KCBT was down 42 cents/bu while the MGE was off 43 cents. Corn futures rose 2 cents/bu this week.
  • U.S. export sales (old crop) were reported at 556,000 MT, the slowest week since June. With 84% of the USDA export projection committed, weekly sales need to average 148,000 MT for the remaining 33 weeks of the marketing year, about a quarter of this week's sales. Traders believe sales will exceed that level this week. Total commitments for 2008/09 are at 780,300 MT, compared to 45,000 MT by this point last year.
  • After discussing proposals to increase its wheat export tariff from 10% to 30% last week, with some in the trade expecting 50%, the Russian economy ministry said the tariff would remain at 10%. The higher tariff would have defended domestic supplies from the export market as the government plans to release 1.5 MMT of intervention stocks next week to bring down domestic prices. This week, the major Russian food retailers signed a pact to freeze prices of staple foods such as bread, easing inflation concerns as parliamentary elections approach in mid-December.
  • The International Grains Council estimates 2008/09 wheat acreage will increase by 3% with seedings to rise in the EU-27, U.S. and the Black Sea region. The Ontario Wheat Board estimates Canadian Eastern SRW plantings tripled this fall on high prices and good weather.
  • Argentina continues to receive favorable weather as rains have ended and sunny conditions decrease disease pressure. Estimates on the Russian harvest, from domestic consultancy SovEcon, were raised 1.5 MMT on increased production in Siberia. Australia is finally receiving rains, but the moisture is now unfavorable as it threatens quality of the ripe wheat and delays harvest.
  • The SRW/corn price spread at the CBOT continues to narrow with December SRW now at a $4.28 premium to corn. New crop (July '08) SRW is at a $2.57 premium to December '08 corn. SW prices, based more on long term fundamentals than the vagaries of the CBOT, did not drop as much as SRW this week. The SW premium to SRW cash prices moved up to $1.21/bu ($44/MT). Across classes, new crop futures continue to gain on nearbys. December delivery SRW is at a $1.23 premium over July, down 40 cents from last week.
  • Durum prices weakened considerably this week as import demand fell off and some grain became available from the country. Net sales were negative for the week. The price range came down $20/MT this week with Duluth origin ranging from $18.78 to $19.32/bushel ($690 to $710/MT).
  • Barge rates are declining, due in part to high water levels on the Mississippi – now well above average. Higher water levels mean more grain can be shipped per barge, increasing fleet capacity, lowering transportation rates and therefore basis. With wheat corn exports pegged at 2.35 billion bushels for this year, the highest level in 18 years, efficient and economical movement of corn will be crucial.
  • Ocean freight rates made another leap this week with fixtures in the PNW climbing more than 10%. At $105/MT, the PNW-Japan rate is 2.8 times (184%) higher than this week last year and 139% higher than June. Container rates to any destination other than China are rising along with bulk freight as temporary "congestion surcharges." Rates are up $150 to $250/container.
  • The dollar continued its decline against nearly every currency this week, including the yen. The dollar sunk to $1.43/euro and $1.03/Canadian dollar.
  • In the near term, prices will find direction from the ability of the U.S. to win tenders and any indication that buyers lack near term coverage.

USW Commercial Sales Report:
http://www.uswheat.org/USWPublicDocs.nsf/a1dc63a602c1d97985256f380066eec2/4fd63d2f9860d3a48525737f0053ed37/$FILE/CS%20071018.pdf

International Grains Council Market Report:
http://www.igc.org.uk/downloads/gmrsummary/gmrsumme.pdf

File Name
PR071026.pdf
PR071026.xlsx
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