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June 6, 2008
(See attached file: PR_080606.pdf)(See attached file: PR080606.xls)

  • Markets continue to strengthen, reacting more to fund activity and outside markets than wheat supply and demand fundamentals. An increase in "fund" investments, specifically index and hedge, was reported on the start of the new quarter, keeping prices firm on Monday despite Australia receiving significant precipitation in the driest growing regions, Algeria canceling a large sale and the U.S. government liquidating food aid reserves on domestic markets. Crude oil, corn and soybeans took over from there with a broad commodity sell-off Tuesday giving way to higher closes through the balance of the week. Corn hit contract highs as rains continue to pound the Midwest, delaying planting and crop progress.
  • HRW harvest advances showing sound, low protein crop with initial fields bringing higher than anticipated yields and test weights while protein levels are lower than hoped for. Reports indicate protein levels averaging around 11% as the fields currently being cut did not suffer heat or moisture stress. The drier Panhandles, Colorado and western Kansas may bring higher protein, but yields and likely test weights will be lower. Protein premiums were already at record levels due to last year's moist growing season leading to lower than average protein. Strong rains fell in the Plains this week, but the larger concern was severe heat affecting the region as much of the Kansas crop remains in the headfill stage.
  • SRW harvest is moving through the Delta with no indications of quality problems. The continued wet conditions in the Midwest are causing concern for what will come as the harvest moves north and east. While the excessive rains have caused some flooding, neither lodging nor sprouting has been reported. Typical harvest pressure combined with unusually low export interest pushed SRW basis premiums to a record low $1.15/bu under CBOT July futures for nearby delivery.
  • Optimism for high global production increased on reports from China, Russia, Germany and the U.S. In its monthly forecast, a Chinese government think-tank increased its production forecast for the country by nearly 5 MMT. The Russian wheat harvest was forecast up 2 MMT this year by the USDA attache. The German farmers cooperative expects winter wheat production in the country to rise 13.5% this year and Informa economics increased its forecast for U.S. winter wheat production by 2.7 MMT to 50.3 MMT. In its monthly report, the International Grains Council increased its global production forecast by 5 MMT, 46 MMT higher than last year.
  • USDA reports will be released next Tuesday on winter wheat production estimates, stocks and the June World Agricultural Supply and Demand Estimates.
  • Rains arrive to Australia with varied opinions about crop benefit. Precipitation was badly needed to improve germination and more rains will be needed to improve subsoil moisture. Continuing rains in southern Europe are a more current problem, raising quality concerns.
  • U.S. export sales for old crop delivery were surprisingly net positive last week with the new marketing year beginning June 1. The old crop sales book was increased by 140,000 MT while new crop interest fell off considerably with only 98,000 MT sold. The strengthening futures prices this week have kept export interest to a minimum.
  • Argentine farmers extend strikes through June 9, protesting export taxes on soybeans. The government published a new resolution that requires wheat exporters to declare stocks and establishes a scheme to set monthly export quotas ensuring supplies for domestic needs. Traders remain pessimistic that wheat exports from Argentina will resume in the near term.
  • Ocean freight rates remained firm this week as the paper market kept vessel owners optimistic while physical trades indicated weakening rates.
  • U.S. food aid reserves now liquidated with USDA officials confirming the last of the wheat in the Bill Emerson Humanitarian Trust was sold last week. At the beginning of 2008, the trust contained 915,000 MT of wheat, all of which was sold since April.
  • Correction: In last week's Price Report highlights we mistakenly reported that Kazakhstan had expanded its export ban on wheat to include flour. In fact, Kazakhstan's Prime Minister only stated that the country might impose a ban on flour exports if needed, going on to say that there is currently no need to do so.

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