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January 5, 2007


(See attached file: PR070105.xls)(See attached file: PR070105.pdf)

Highlights
Grain futures markets followed crude oil prices down this week, highlighting the correlation between energy and grain prices in the ethanol age. Crude oil fell from $61/barrel last week to $55 yesterday, a 10% decline. Corn nearbys fell 20 cents/bushel, a 6% decline.

Along with the decline in energy/corn/soybean futures, wheat fundamentals also supported a fall in prices. Today's export sales report showed a marketing year low 135,000 MT sold during the week of Christmas. Weather has been beneficial for U.S. winter wheat and with worldwide acreage increases, supplies are expected to increase this spring. Index fund positioning is also reportedly bearish. From last Thursday's Price Report, March delivery CBOT futures are down 34 cents/bushel, the KCBOT is down 31 cents and the MGE down 25.

With the large break in the boards this week, traders are optimistic that importers will return to the market next week getting back to work after the holidays. SRW basis prices continue down from the mid-December crash, falling another 5 cents/bu this week. Nearby FOB Gulf cash prices are at a 20 cent premium to the CBOT. This puts SRW cash prices 39 cents/bu ($14/MT) below last week and $29/MT below mid-October. Deferred SRW basis quotes are also down as supplies appear ample.

Interior transportation costs down this week. Barge rates are down 2% from last week, 34% lower than this week last year and 19% below the 3-year average. Although rail rates are trading at a discount in the secondary market, tariff rail rates -- by far the largest segment of rail costs -- at $23/MT, are 5% higher than last year on the Kansas City to Galveston (HRW) route. Rates are $42/MT, 10% higher on the North Dakota to Houston (HRS/durum) route.

Cheaper transportation has pushed down HRS basis at the Gulf.

With the fall in SRW cash prices, the HRW premium to SRW rose again, now 63 cents/bu ($23/MT). The SRW nearby cash premium to SW has nearly evaporated, currently at 5 cents ($2/MT).

The ocean freight market moved up this week in both the Pacific and the Atlantic basin. As expected, China continues is driving the demand side, fixing time charters of both Panamax and Handymaxes for 1 to 2 years, as well as shorter terms. Some vessel supply surplus reported in the Mediterranean, forcing some exit ballasting.

At $1.31/euro, continued dollar weakness is supporting FOB SRW at a $15/MT discount to French supplies.

File Name
PR070105.xls
PR070105.pdf
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