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June 27, 2008

(See attached file: PR 080627.pdf)(See attached file: PR 080627.xlsx)

  • Futures notched higher this week countering fundamental rationale as the potential for the global harvest, already expected to exceed the record by 6%, continues to grow. U.S. SRW farmers are calling this the best crop they have ever seen while HRW protein levels and quality are surprisingly strong. Wheat should find support from extremely tight corn and soybean balance sheets, but observers are perplexed as to why wheat is outpacing the others. The usual suspects are being blamed including weakness in the dollar, strength in crude oil and gold and investment money shifting from equities to commodities. Funds rebalancing portfolios may also be supporting wheat while fundamentals point to a decline. For the week, July delivery positions at the CBOT rose 29 cents/bu, the KCBOT was up 10 cents/bu and the MGE nearby shot up $1.19/bu. Corn and soybean prices set record highs this week as rains in the Midwest are not letting up. Corn nearbys were up 34 cents/bu and soybeans gained 49 cents/bu.
  • Optimism for world production continued to increase with the International Grains Council raising its forecast for global production by 8 MMT to 658 MMT this week, much of it on improved prospects for the Chinese harvest. Statistics Canada estimated 2008 wheat planting above expectations at 10.2 million hectares, up 16% from last year, while durum planting is up 27%. The European organization of grain traders, Coceral, raised its forecast for production in the EU-27 to meet the USDA forecast of 140 MMT, 17% above last year. India is considering releasing wheat into the open market with production forecast at a record 78 MMT. "Production has been the highest since independence," said the country's farm minister.
  • Strong export sales pace and interest continue despite the price run-up. This week's report added close to 500,000 MT to the total with Japan accounting for nearly half of the sales. The report shows Mexico and Brazil increased winter wheat coverage while Egypt booked a Panamax of SRW. USDA reported a sale of 280,000 MT of HRW yesterday to an unknown destination.
  • SW prices fell this week in new crop positions with exporters becoming more aggressive as harvest approaches. New crop cash values fell 20 cents/bu ($7/MT) this week taking the September SW/SRW spread down to 68 cents/bu ($25/MT) from $2.95/bu ($108/MT) in nearby positions.
  • Argentina reopened exports as farmers cleared roadblocks, ending their fourth strike in 3 months. If the Argentine market remains functional HRW exports to Brazil are expected to fall off with cancellations already being reported. Only 1 month into the marketing year Brazil has bought 523,000 MT of HRW after taking an average 167,000 MT booked over the entire year for the past 5 years. Traders perceive the current truce in Argentina as tenuous, reporting that the situation could change quickly.
  • Ocean freight resumed its upward march this week as the resumption of exports from Argentina soaks up vessel capacity. Nearly 60 ships were reportedly waiting at Argentine ports to ship grains and oilseeds. Good availability of spot vessels in the Gulf moderated the rate increase, but vessel owner confidence has been restored, pushing rates much higher. Pent up demand was also a factor as shippers that had been waiting for prices to bottom out before booking freight piled into the market. For the week, rate indications in the Atlantic are up $8/MT and the Pacific is up $3/MT.
  • Prices could respond to the USDA acreage and stocks reports released next Monday with markets expected to key off corn and soybean estimates. Reductions in corn and bean planted acreage are expected resulting from the persistent rains, increasing pressure on already tight balance sheets and the need for price rationing.

File Name
PR 080627.pdf
PR 080627.xlsx
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