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May 9, 2008

(See attached file: PR 080509.pdf)(See attached file: PR 080509.xlsx)

  • Futures see-sawed through the week as corn seeding delays and continued import demand supported while beneficial weather in the HRW belt kept pressure on prices. USDA reports released today showed very optimistic wheat production estimates and a strong rebound in global supplies, leading to a sharp sell-off. Limiting the price break is a very tight old crop balance sheet and weather conditions rife with potential problems that leave significant downside potential for new crop yields. For the week, May delivery futures at the CBOT were off 5 cents/bu, the KCBOT fell 17 cents/bu while HRS nearbys at the MGE rose 40 cents/bu. Corn nearbys were up 17 cents/bu and soybeans up 57 cents.
  • U.S. weather concerns are focused on corn planting, languishing at 27% compared to the 59% five-year average. The cool, wet pattern in the Midwest is forecast to continue through next weekend, further increasing delays and decreasing corn yield potential. U.S. wheat conditions continue to improve with significant rainfall in the Southern Plains. The SRW belt is in nearly ideal shape, but needs a drier pattern to form in the near term to avoid disease and other problems. The slow development of the SRW crop could cause problems for producers planning to double crop this year as the late wheat harvest could cut soybean yields. The western HRS region in the Northern Plains remains too dry, reducing HRS and durum yield potential, while eastern North Dakota and western Minnesota are too wet.
  • Global weather reports vary as conditions in Europe, from Britain to the Ukraine, remain excellent, while potential problems are rising elsewhere. The situation in Australia has turned from giddy optimism to caution with early neutralization of the La NiƱa pattern credited with a dry April and continued lack of precipitation forecast everywhere except the far southwest. The Canadian Prairies, like the U.S. Northern Plains, continue to see above normal precipitation in the east, dry conditions in the west and temperatures well below normal throughout the the region although Ontario winter wheat crop conditions are promising. Drought has substantially decreased yield potential in North Africa, Syria and Iraq.
  • Today's USDA WASDE (World Agricultural Supply and Demand Estimates) were anticipated to be bearish for wheat and the report exceeded expectations. Global production is forecast to climb nearly 50 MMT (8%) leading to a 14 MMT rebound in ending stocks. Current weather supports production increases forecast for the EU-27 (20 MMT) and Black Sea (7 MMT), while weather leading to a 5 MMT (25%) increase for Canada and an 83% increase in Australian production remains unseen.
  • U.S. feed use of wheat in 2008/09 is forecast to increase nearly 4 times over this year, while just 15% above the 10-year average. Considering the current weather problems in the corn belt while SRW and its global competitors are in very good condition, the corn/wheat spread at the CBOT is increasingly important.
  • U.S. export sales of old crop supplies continued at a stable pace with 178,800 MT booked last week. USDA raised the old crop HRW export forecast slightly, leaving it 264,000 MT oversold. Including donations, only 83,000 MT of old crop supplies remain to be sold over the next 4 weeks. Attention has shifted to new crop with nearly 313,000 MT of new crop supplies booked last week as Guatemala and Mexico led buyers, putting total new crop sales at 3.95 MMT. This week USDA announced that Iraq bought 300,000 MT of HRW. Brazil is expected to book more HRW when the government allows another set of tax free imports.
  • SW prices firmed substantially this week as unfavorable weather increases concern over the tight supply situation. Like the rest of North America, spring is late in arriving to the PNW. The region is in need of precipitation and a warmer weather pattern in the next couple of weeks or yields will begin to suffer. Old crop supplies are up $1/bu $10.25/bu ($377/MT). New crop SW values remained generally firm at $8.35/bu ($307/MT).
  • Ocean freight rates continue to soar, adding $3/MT in the Atlantic and $2/MT in the Pacific this week, putting rates back at record highs last seen in October and November, 2007 with increased iron ore and grain shipments being blamed for the rise. The Argentine strike has not caused a decrease in rates as it did during the 3 week strike earlier this year. The freight futures market is inverted with deferred shipping periods trading at a discount to spot prices, providing optimism that rates have topped out.
  • Near term price direction remains highly dependent on weather.

File Name
PR 080509.pdf
PR 080509.xlsx
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