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July 18, 2008

(See attached file: PR 080718.pdf)(See attached file: PR 080718.xlsx)

Highlights
  • Wheat futures continued lower this week, buffeted by outside markets and technical trading, while last week's USDA report added fundamental bearish pressure. A surprisingly large export sales report, along with growing import demand that appears likely to tap U.S. supplies, were outshadowed by political developments in Argentina. Corn and soybean prices came under pressure on improved weather in the Midwest while crude oil fell 10%. For the week, September delivery positions at both the CBOT and KCBOT fell 27 cents/bu and the MGE was off 9 cents/bu. Corn prices were down 82 cents/bu while August delivery soybeans declined $1.46/bu.
  • Export sales continue at impressive pace. HRW demand remains very strong with sales approaching 350,000 MT this week as quality sensitive buyers in Africa, Latin America and Asia currently have limited global alternatives. SRW demand is benefiting from buyer confidence that sales will execute, picking up another 200,000 MT this week despite Black Sea supplies being priced $30-$40/MT under SRW in the important North African market. Sales of all classes combined for 748,000 MT on the week, taking year to date sales to 10.6 MMT, 26% above this week last year and 82% higher than July 2006.
  • A tale of two winter wheats is developing with diverging demand outlooks for SRW and HRW. This week's Egyptian tenders showed SRW priced well above competing supplies in that market. The Egyptian demand will be missed with SRW production up 70% this year. Near-term supply availability for grain that competes with SRW is increasing with impending harvests in Eastern Canada, the Black Sea and Western Europe. HRW production is forecast up a more moderate 8% while export demand has been on fire. HRW sales are 82% above this week last year and 212% above 2 years ago. Access to Argentine supplies remains constrained while other exporters lack supplies, keeping the export outlook for HRW strong through the calendar year until the Australian program begins in January. Because futures markets remain unresponsive to these fundamentals, export basis prices are absorbing the supply and demand reality with SRW basis falling again this week to a record $1.20/bu under Chicago while HRW basis increased to 90 cents/bu over Kansas City.
  • High protein basis premiums fell this week despite HRS conditions falling sharply, dropping below the 5-year average for the first time this season as the Northern Plains continue to lack moisture. HRS basis fell 20 cents/bu in new crop positions on weak export demand as European buyers wait for the German harvest that is expected to begin this week. Further increasing high protein supplies, protein content in the HRW crop improved dramatically as the harvest moved north. The premium for 12% over 11.5% protein HRW fell to 10 cents/bu this week in Gulf ports, down from 50 cents/bu last month. Traders suggest that protein premiums could fall further.
  • Middle Eastern demand gained attention with tenders from Turkey, Syria, Oman and Jordan and large imports by Iraq and Iran looming. Iraq issued a tender this week while another 300,000 MT of HRW is reportedly under consideration. A 65,000 MT sale of HRW to Iran was reported this week. According to USDA data, it was the first U.S. sale to the country since 1981/82. As recently as 2000/01 Iran booked over 6.3 MMT, tapping Australia, Canada, the EU and Argentina. With exportable supplies currently short in those origins and the Iranian commerce minister announcing that the country needs 5 MMT of imports over the next 6 months, traders expect Iran will purchase significant quantities of HRW over the summer.
  • Australian weather remains a key market driver, although the most important weather period for the crop is still a month or more away. A particularly dry June and early July in Western Australia is concerning enough to keep producers from hedging their crop, having been hurt from 2 successive droughts, but recent rains have restored optimism among forecasters.
  • Argentine drama continues as the Senate voted down the tax on agricultural exports with the deciding vote being cast by the Vice President. The vote shocked markets, taking the entire grain and oilseed sector lower Thursday. Argentina's Agriculture Secretariat cut its forecast for wheat planted area for this season's harvest to the smallest level in 16 years, saying that dry soils delayed planting in many areas, leading farmers to switch to later-planted crops such as corn.
  • Freight rates fell as physical markets remained quiet and the Baltic indices slid. Rates indications in the Atlantic are down $3/MT and the Pacific fell $4/MT.

File Name
PR 080718.pdf
PR 080718.xlsx
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