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January 18, 2008

(See attached file: PR 080118.pdf)(See attached file: PR 080118.xlsx)
  • U.S. futures markets saw spectacular gains in the 6 sessions since the last Price Report. Last Friday's winter wheat plantings report, estimating a decline in HRW acres, changed the new crop supply perspective, reducing hopes for new crop relief from very tight high protein supplies. The biggest gains of the week were in Minneapolis as the market needs to buy more HRS plantings or ration demand, or both. The sales report showed that import demand remains robust and with several tenders floated this week, global demand appears truly price inelastic. For the week, SRW nearbys at the CBOT rose 80 cents/bu, the KCBOT gained $1.17/bu and the MGE was up $1.62. Corn and soybeans were also higher, gaining 23 and 20 cents/bu respectively.
  • Export sales were well above levels the trade perceives as sustainable. After durum, the two tightest classes, SW and HRS, saw the largest sales of the week. Nearly 175,000 MT of HRS were booked, over 10 times more than the weekly average needed to meet the USDA forecast. The Philippines booked 45,000 MT of new crop SW. Import focus for the coming week will turn to the Middle East with tenders for Jordan, Turkey, Pakistan and perhaps Iraq.
  • HRS/HRW basis prices continue to ratchet up, even as futures rise. Both HRW and HRS basis offers are up 10 cents/bu at Gulf ports this week, taking the HRS basis to $2.05, quickly approaching the $2.15 record set in June 2005. PNW basis rose more than 20 cents/bu for both classes as exporters have to reach further into the country to source grain to meet the consistent Asian demand. HRS basis offers in the PNW set a new record high this week.
  • HRS plantings are expected to be unresponsive to record prices as competing crop prices are also strong. Today Informa economics further decreased its forecast for 2008 spring wheat plantings, now expected to fall by 5% from last year.
  • Bullish press stories included Pakistani troops guarding wheat shipments and a freeze in Syria threatening crops in the minor wheat exporter.
  • Bearish fundamentals included a 21% increase in U.S. SRW and 7% in SW planted acreage combined with comparable increases in the Black Sea region and Europe.
  • White wheat prices continue up with a 50,000 MT purchase by Yemen and 95,000 MT booked by Indonesia. Offers rose $1/bu this week to $16 ($588/MT).
  • Price spreads: The HRS premium to SRW set a record this week at $2.32/bu after trading at a 70 cent discount in September. The Gulf FOB cash spread between HRS and SRW is $3.89/bu (143/MT). HRW cash values are 86 cents higher than SRW. The SW premium to SRW is at $6.03/bu ($222/MT), up from $1.06/bu last October. New crop HRS prices fell back 10 cents/bu on old crop this week with September '08 delivery HRS at a $1.54/bu discount to nearbys.
  • Ocean freight rates continued to fall precipitously this week, particularly in the Pacific, reportedly due to delays in iron ore negotiations with China. The spread between Gulf and PNW origin rates to Japan are now at a $49/MT.
  • Near term price direction will depend on evidence that import demand is being met by non-U.S. sources.

File Name
PR 080118.pdf
PR 080118.xlsx
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