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December 7, 2007

(See attached file: PR 071207.pdf)(See attached file: PR 071207.xlsx)

  • This week, U.S. winter wheat futures started down on profit taking and corn/wheat spreading. A sizeable increase expected for the U.S. ethanol mandate in impending energy legislation, along with robust corn exports, brought attention to the corn balance sheet. Interest returned to wheat markets on stout tender activity and further evidence that governments in Russia and Argentina (among others) intend to protect domestic supplies. Supply fears were increased by bullish market reports from Australia, Canada and the European Union. For the week, SRW for March delivery at the CBOT increased by 36 cents/bu, the KCBOT was up 44 cents/bu and MGE March futures are up 61 cents. Prices for HRS, SW and durum are at record highs this week.
  • This week's export sales report was below expectations and was one of the lowest of the year at 236,000 MT of old crop supplies. Traders expect this lull to continue until global export competition slows. With 26 weeks to go in the marketing year, sales need only average 121,000 weekly to meet the USDA export forecast. Global import demand remains strong, evidenced by tenders and purchases this week by India (350,000 MT), Morocco (314,000), Pakistan (200,000), Turkey (200,000), Japan (195,000), Egypt (175,000) and South Korea (68,000).
  • Although the Australian Bureau of Agricultural and Resource Economics (ABARE) increased its estimate for current year production by 600,000 MT, it decreased its export forecast by 3.3 MMT to 6.6 MMT, down 8.7 MMT from Australia's 10-year average exportable surplus. The tightened supply situation in the Pacific will keep pressure on U.S. PNW supplies. Basis prices in the PNW for HRS and HRW strengthened this week while SW prices are up $31/MT (85 cents/bu) from last week. Taiwan did not buy SW in its tender this week citing high prices, however traders are not optimistic that prices will fall. Demand from Japan and Korea is expected to remain consistent, or even increase on the short Australian exports, while supplies in the country are very tight.
  • Statistics Canada lowered its production estimate nearly 600,000 MT this week, much of it from spring wheat, implying increased demand for an already tight HRS balance sheet. North American spring wheat comprises a large portion of global high protein supplies. With the average protein content of HRW lower this year, traders expect premiums for high protein grain to increase.
  • This week, a Russian Economic Minister said the government may adopt "a legislative tool" enabling it to enact an immediate export ban on some agricultural commodities, including wheat. Currently, the government must give a month notice that it will restrict exports. Originally to reopen on Monday, the Argentine government extended its closure of the export registry for 3 weeks. The Ukrainian export ban has reduced year to date exports to 110,000 MT from 2.2 MMT by this time last year.
  • Durum prices from Duluth origin range are up $20/MT this week, currently ranging $705 to $730/MT ($19.19 to $19.87/bu).
  • An unusual lack of deliveries on December contracts forced the shorts to buy back the MZ07, pushing it to an historic $10.43/bu. December HRS is now at a $1.40/bu premium to December SRW, compared to a 70 cent/bu discount 3 months ago.
  • SW premium to SRW cash prices widened to $2.74/bu ($100/MT). The SRW/corn spread continued up this week with March SRW now at a $5.04 premium to corn. In the impending competition for spring acres, HRS has increased its premium over corn substantially. September delivery HRS is at a $4.10/bu premium over December corn, up from $1.54/bu early this summer.
  • Ocean freight rates are down considerably this week, especially on Pacific routes. The Baltic Pacific Index is now down 25% from 6 weeks ago, taking rate estimates down $24/MT from October. Atlantic routes are down a more modest 12% or $15/MT over the same period. Compared to December 2006, rates on Pacific routes have nearly doubled, up $39/MT, while Atlantic routes are up 120% or $60/MT.
  • The dollar steadied this week against the euro, currently at $1.46. The U.S.$ broke through parity against the Canadian dollar, now valued at $1.01 after sliding to $0.93 nearly a month ago.

U.S. Wheat Associates is the industry's market development organization working in 90 countries on behalf of America's wheat producers. The activities of U.S. Wheat Associates are made possible by producer checkoff dollars managed by 18 state wheat commissions and through cost-share funding provided by USDA's Foreign Agricultural Service.

File Name
PR 071207.pdf
PR 071207.xlsx
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