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April 25, 2008

(See attached file: PR 080425.pdf)(See attached file: PR 080425.xlsx)

Highlights
  • Futures continued to decline sharply this week as old crop supply problems appear solved by the upcoming record harvest. Lacking weather problems for the 2008 crop and demand for old crop supplies remaining very quiet, the only support for wheat markets came from the corn pit as wheat is again at risk of falling into feed rations. Ukraine increased supplies available under its export quota while Argentina extended its closure, increasing open demand for HRW supplies while SRW will have to search for buyers. U.S. winter wheat conditions dropped this week although weather would seem to indicate otherwise. For the week, May delivery futures at the CBOT were down 70 cents/bu, the KCBOT fell 85 cents and the MGE was $1.10/bu lower. Corn nearbys fell by 22 cents/bu and soybeans were off 36 cents/bu.
  • U.S. export sales of old crop supplies were 158,000 MT last week, still exceeding the pace needed to meet the USDA export forecast. Including donations, exportable supplies are forecast at 446,000 MT with 6 weeks left in the marketing year. The U.S. Commodity Credit Corporation sold over 260,000 MT of HRW supplies this week, temporarily solving the problem of HRW sales exceeding the forecast by nearly the same amount. Another 114,800 MT of new crop supplies were booked, taking total sales for 2008/09 to 3.3 MMT, nearly 4 times greater than last year.
  • Ukrainian export restrictions were loosened this week. The day after the Prime Minister announced the cancellation of grain export quotas, saying that,"...grain can move freely from Ukraine,” the government announced the continuation of quota restrictions until July 1, but increased the wheat quota from 200,000 MT to 1.2 MMT.
  • The Argentine export closure was extended indefinitely last week, shifting considerable open demand from Brazil to North American supplies, especially U.S. HRW. Brazil is expected to be the world's second largest importer this year and has already booked 445,000 MT of U.S. wheat compared to 16,000 MT in 2006/07. More sales are expected to show up on next week's report. The open Brazilian demand has tightened the HRW picture just at the bridge between old and new crop supplies, keeping a carry in cash values for deferred positions. HRW basis prices firmed this week, particularly for high protein supplies in July and August positions.
  • The Canadian planting intentions survey released by Statistics Canada this week showed all wheat plantings are to increase by 16% this year with durum up 23%. With U.S. HRS acreage forecast up 7% and durum up 22%, the 2008/09 supply outlook for these 2 classes is optimistic, although harvest is still 4 months away. HRS basis offers for nearby delivery fell to $1.00/bu from Lakes ports this week.
  • Crop progress reports this week showed 20% of U.S. HRS has been planted, quickly catching up with the 5-year average of 23%. Significant rainfall in the Central and Southern Plains HRW belt have reportedly improved the crop potential substantially, although the conditions report indicated the crop lost ground last week, with ratings well below average. The progress of the HRW is also well behind average with only 7% of the crop headed compared to the 5-year average of 14%.
  • The world's largest wheat producers are expecting bumper crops this year as China has received ample precipitation in its top wheat provinces and the Indian Agriculture Minister stated the country would not import this year due to strong domestic procurement on a record harvest.
  • SRW demand appears lacking as Ukrainian wheat typically competes with SRW and this week's purchase by Egypt's GASC was for late June delivery. The GASC purchase was also filled with in-country supplies, further decreasing the SRW demand outlook. The new supply and demand picture put pressure on SRW FOB basis prices.
  • SW prices continue to dive along with weakening SRW values in both old and new crop positions. This week old crop SW fell $1.25/bu, down over $2/bu in 2 weeks to $10.50/bu ($386/MT). New crop SW is offered at $8.35/bu ($307/MT). Although a small chunk of SW was sold from the food aid catalog, the additional supplies reportedly did not affect prices.
  • Ocean freight rates strengthened substantially this week with rate estimates in the Atlantic up by $4/MT and the Pacific $6/MT higher than last week.

File Name
PR 080425.pdf
PR 080425.xlsx
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