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May 30, 2008

(See attached file: PR 080530.pdf)(See attached file: PR 080530.xlsx)

Highlights
  • Wheat prices firmed this week despite harvest advancing in the Southern Plains with increased optimism for yields and quality. The global production outlook remains too unclear for markets to make a decisive move down. Drought is a reality in the Middle East and North Africa and a real fear in Australia while markets perceive export restrictions lingering around the world could just as well be renewed as lifted. Declines early in the week in corn, soybean and crude oil prices along with a firmer dollar added to bearish sentiment while a spate of fund buying in Chicago today supported SRW. For the week, July delivery positions at the CBOT climbed 9 cents/bu, the KCBOT rose 4 cents/bu while the MGE strengthened 25 cents/bu. Corn nearbys were off 1/2 cent/bu and soybeans fell 5 cents.
  • Winter wheat conditions improved with 6% of the Texas crop already in the bin as of last Friday. The Oklahoma Wheat Commission reports that wheat is being cut in the southern third of the state with very good test weights and yields. The harvest will not arrive to Kansas for a few weeks. The Southern Plains have received a large number of severe storms in recent days including hail and tornados causing localized damaged. The PNW cooled off quite a bit and received moisture, stabilizing the SW crop although conditions in Oregon remain poor with only 23% of the crop rated good to excellent. The initial HRS conditions report showed below average ratings as severe drought lingers in western North Dakota. The Northern Plains received rain last night but need warmer temperatures to spark crop growth, avoiding a late harvest and the threat of a September freeze.
  • U.S. export sales for old crop delivery were net negative this week, as expected, while the new crop program jumped 900,000 MT. With the new marketing year starting next week, much of the unshipped old crop business will shift to the 2008/09 book. Iraq bought 400,000 MT HRW last week and switched another 200,000 MT to new crop delivery, taking their total position for 2008/09 to 1 MMT compared to 2.1 MMT for all of 2007/08. After such an aggressive start, Iraq appears covered through the near term.
  • HRW basis firmed for spot delivery as demand from Iraq, Brazil, Nigeria and Cuba is keeping elevation capacity tight and the cool spring has slowed the harvest. July delivery basis falls off as traders are not confident that demand will remain robust. HRS demand is slow as strong old crop futures prices offset weaker basis, keeping cash prices high. Demand is generally focused on Asia, particularly the Philippines, and Latin America.
  • SW prices eased back 25 cents/bu ($9/MT) on increased supply availability due to the release of nearly 200,000 MT from government food aid reserves and better weather in the PNW.
  • All eyes on Australia as the specter of drought has returned to the world's second largest exporter. The planting season is coming to a close as winter in the Southern Hemisphere officially begins in 3 weeks. Rabobank revised its production forecast for the country down 3 MMT this week. Giving hope to producers in the driest areas, the Australian Bureau of Meteorology forecasts the eastern part of the country will receive above average rainfall over the winter months while drier conditions are expected for the currently verdant southwest.
  • Rains in Southern Europe cause quality concerns, raising fears of a repeat of last year's problems as continuing precipitation in Italy and Spain is not at all favorable for ripe wheat. Northern Europe reportedly looks good with Germany's government estimating plantings up nearly 7% this year, thanks in large part to the temporary mitigation of set-aside requirements.
  • Russia will not extend export taxes, with caveats. The Russian Agriculture Minister said this week there is no reason to extend the 40% export tariffs beyond June as prices are declining and a record harvest expected. He also said Russia should focus on value-added exports, such as flour and meat products, rather than grains. Another government official outlined a government plan to buy up to 3 MMT of wheat to be sold later in the year to keep prices low, which would be accompanied by another round of export tariffs. This week, neighboring Kazakhstan expanded its export ban on wheat to include flour, the ban is due to expire in September.
  • Argentine problems continue as the government cancelled talks with producer groups early this week. The government issued a revised tax structure, but the wheat export registry is expected to remain closed. Local reports indicate significant quantities of exportable supplies in the country, but the government wants to keep domestic prices low. The Buenos Aires Grain Exchange estimated area seeded with wheat will fall 8% below last year due to low prices as well as dry conditions. High prices in neighboring Brazil are motivating higher plantings as the country is now starting winter wheat seeding.
  • India may lift its ban on wheat exports according to the country's Farm Minister due to a bumper harvest and strong government procurement for its subsidized food programs.
  • Ocean freight rates plunged this week with the Baltic Exchange's Panamax Index falling nearly 5%. The fall was lopsided as rates in the Atlantic eased nearly 9% on increased capacity as vessels ballasted from the Pacific basin to capture the hefty spread. The vessel hemorrhage out of the Pacific kept PNW origin rates firm, even rising on some routes. The ongoing fiasco in Argentina exacerbates the Atlantic rate decline as vessels are freed up for other routes.

File Name
PR 080530.pdf
PR 080530.xlsx
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