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February 16, 2007

(See attached file: PR070216.pdf)(See attached file: PR070216.xls)
Wheat futures prices fell through Wednesday on pressure from the corn market. Brazil and Argentina are about to harvest the largest corn crop ever as farmers were able to react to strong prices and maximize inputs. Last week's WASDE revised South American corn production up by 6 MMT. Crude oil prices slipped below $58/barrel which many believe is also bearish for corn prices.

A surge in fund buying at the KCBOT on Thursday 10 minutes before the close, followed by a jump today from "La NiƱa bulls," or forecasts of a dry spring and summer in the U.S. Plains, made up the ground lost earlier in the week and then some. CBOT SRW nearby futures were up 8 cents/bu from last week, the KCBOT up 11 cents and the MGE ended 9 cents up from last Friday's close. The board jump would have implications for SRW should Egypt tender over the weekend.

The feed mills in western Kansas have begun including old crop HRW into feed rations. New crop sales have also been reported. According to current prices offered today at the Scott County Cooperative, the price per pound of wheat is even with corn. As wheat is thought to be 10% more efficient in feed than corn, wheat is now 0.8 cents/ cheaper than corn in feed rations.

The corn/SRW futures spread keeps edging down, currently 51 cents/bu at the CBOT, down from 54 cents/bu last week. The export spread is 25 cents/bu at Gulf ports.

The drought in the Maghreb region of North Africa continues to look more dramatic. Initial estimates for Moroccan production are below 2 MMT, down from 6 MMT this year.

HRW basis prices stronger at the Gulf on a tighter balance sheet driven by increased domestic demand. PNW basis prices are quoted by traders over the May delivery month, although they are reported over the March in this report in order to maintain consistency with the other ports.

The HRW premium to SRW up this week to 87 cents/bu ($32/MT).

HRS basis for the April Lakes opening strengthened this week as importer interest has increased. The Canadian rail strike has put some logistical risk into an already very tight HRS/CWRS balance sheet.

The SW premium to SRW came down 10 cents/bu this week to 43 cents/bu ($16/MT).

Barge rates rebounded after declining for 3 weeks as ice build-up forced a width restriction on the Mississippi. Rates are now 15% to 35% ($4/MT) lower than this week last year.

Ocean freight rates remain at two-year highs, supported by strong Chinese iron ore demand and winter utility demand for coal in Asia. The panamax market is picking up business from split capesize shipments. Rates moved up $2/MT in the Pacific while rates in the Atlantic basin are unchanged from last week. At $38/MT, the PNW to Japan rate is $15/MT (65%) above year-ago rates while the Atlantic basin is up $20/MT (57%). The grain harvest in Argentina and Brazil is expected to keep rates firm, along with port congestion and continued delays at Australian and Indian ports.

The euro keeps pushing higher, at the highest level in 6 weeks, putting French/German supplies at a distinct disadvantage to SRW.

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