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January 25, 2008

(See attached file: PR 080125.pdf)(See attached file: PR 080125.xlsx)
Highlights
  • U.S. futures markets: Winter wheat markets gyrated erratically with global stock markets this week while Minneapolis strengthened independently. Expectations for a mammoth 2008 winter wheat harvest and rumors that Argentina and the Ukraine will reopen exports soon allowed winter wheat futures markets to fall while HRS joined durum and SW with an arithmetically challenging balance sheet that pushed cash prices dramatically higher. Sales remain robust and indicate that many buyers are putting on preemptive coverage. For the week, SRW nearbys at the CBOT fell 30 cents/bu, the KCBOT was down 41 cents/bu while the MGE shot up 72 cents.
  • Export sales continue to greatly exceed sustainable levels. Sales of HRS currently exceed the USDA forecast, with 19 weeks remaining in the marketing year. At 423,000 MT, all class sales were nearly five times greater than the 89,000 MT weekly average needed to make the USDA forecast that will leave U.S. stocks at the lowest level in 60 years and the lowest stocks-to-use ratio ever. The tight situation has caused several buyers to cover well in advance. With nearly 250,000 MT of new crop booked on today's report, 1.5 MMT of 2008/09 supplies have been purchased, the highest level of new crop bookings since 1980. Traders anticipate next week's sales report will be at a similar level as this week.
  • Winter wheat production up: U.S. SRW will be the first wheat harvested this spring, hopefully in time to meet demand as global supplies are seen dwindling. The International Grains Council forecasts acreage in the Ukraine to increase by 12%, 5% in the EU-27 and 14% in Canada to help replenish exportable supplies next year. IGC forecasts global 2008/09 wheat production to increase by nearly 40 MMT or 7%.
  • Spring wheat production to fall: Analysis by the Newedge Group shows that U.S. producer returns in 2008/09 from HRS would exceed soybeans by $14/acre. North American spring wheat acreage is still expected to fall based on high fertilizer prices, high prices for barley, canola, edible beans and durum, as well as higher winter wheat acreage planted last fall in the spring wheat region. Informa economics forecasts a 5% decline in HRS acres.
  • Basis prices jumped in both the Gulf and PNW as exporters search for supplies. At the Gulf, SRW basis doubled to 60 cents/bu and HRS basis finally broke the 2005 record for Gulf origination, now at a $2.35/bu premium. PNW HRS is offered at a $3.00/bu premium to MGE futures while SW gained another 50 cents/bu, now valued at $16.50/bu ($606/MT).
  • Price spreads: The HRS nearby futures premium to SRW exploded to $3.34/bu after trading at a 70 cent discount in September while the Gulf FOB cash spread between HRS and SRW is at $5.74/bu (211/MT). The HRW cash value premium to SRW fell 29 cents to 57 cent/bu as low protein HRW is lacking export demand. The SW premium to SRW is at $6.57/bu ($241/MT), up from $1.06/bu last October. New crop HRS prices continue to fall against old crop withSeptember '08 delivery HRS at a $2.23/bu discount to nearbys.
  • Ocean freight rates continue to plummet as vessel owners search for shippers. China's absence from the freight market has left a vacuum as negotiations with Australia and Brazil for iron ore continues. Estimates vary on how quickly, and to what level, rates will rebound once Chinese shipments resumes.

File Name
PR 080125.pdf
PR 080125.xlsx
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