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May 16, 2008

(See attached file: PR 080516.pdf)(See attached file: PR 080516.xlsx)

Highlights
  • Futures continued to erode this week with weather playing a dominant role as focus has shifted to the harvest. Last week's mammoth USDA production forecast has prices under considerable pressure while markets keep an eye on prospects for rain in Australia, deteriorating conditions across North Africa and the Middle East, and harvests in the Western Hemisphere not at all guaranteed. The demand picture was helped by Brazil lifting import taxes while strong corn prices promise support as wheat defends itself from feed demand. From winter highs, SRW and HRW futures are down nearly 30% while HRS is off 50%, now at levels last seen 5 months ago. May delivery futures dropped from the boards this week, shifting nearbys to July. In that position the CBOT fell 29 cents/bu and the KCBOT fell 21 cents/bu. The MGE continues to defend tight old crop supplies, rising 1 cent/bu for July delivery, but falling 30 cents or more in deferred '08 positions. Corn nearbys fell 38 cents/bu while soybeans gained 20 cents.
  • Concern over corn planting delays eased this week as the plantings report showed progress jumped to 51% from 27% last week and forecasts indicate a drier, warmer pattern for next week. Although current progress still lags significantly behind the 5-year average of 77%, markets are optimistic that producers can quickly catch up armed with modern machinery while advanced seed technology supports strong yield potential despite the planting delays. Yesterday Informa economics forecast corn plantings at 35.3 million hectares, 1.3% above USDA and 6.8% below last year.
  • Dry conditions in the Northern Plains are raising concern as North Dakota declared an "early phase" agricultural drought emergency. Forecasts indicate needed precipitation could arrive in western North Dakota and eastern Montana by the end of next week. Eastern North Dakota and western Minnesota have been excessively wet, leading analysts to predict some switching of intended HRS acreage to soybeans.
  • Winter wheat crop ratings remained stable this week as the HRW region continues to receive beneficial precipitation, including the very dry Texas and Oklahoma panhandles and north into Colorado and Kansas. SRW conditions will benefit from the drier pattern forecast for the Midwest while the PNW has received needed warmer weather and a modicum of precipitation. The cool spring weather has delayed crop development significantly with only 36% of winter wheat headed compared to the 53% average. The slow progress could be problematic if temperatures suddenly return to seasonal highs during the headfill stage of development.
  • Brazil extended its import tax exemption this week as the Argentine export ban keeps Brazil's major supply source unavailable. The exemption allows up to 2 MMT of wheat imports before August 31 free from a 10% import tax and a 25% marine tax. Brazil, typically the second largest global importer, has booked nearly 500,000 MT of U.S. wheat for 2007/08 and 233,000 MT for 2008/09. Traders report a few more sales will show up on next week's report and expect demand to remain strong through the summer.
  • U.S. export sales of old crop supplies remained moderate with 120,700 MT booked last week as Egyptian purchases of 120,800 MT SRW weighed against sales rolled forward to next year and cancellations. New crop sales remain quite brisk with 443,600 MT booked last week led by an Iraqi purchase of 300,000 HRW. Total commitments for 2008/09 are at 4.4 MMT compared to 1.3 MMT last year and the ten-year average of 1.5 MMT.
  • Ocean freight rates shot up this week as negotiations over iron ore pricing between Australia and China has Brazilian ports chockablock with ore vessels bound for Asia. The increased port delays and tonnage miles set freight markets on fire this week, adding $14/MT to rates in the Atlantic while rate estimates in the Pacific rose a more moderate $3/MT, putting the Baltic Dry Index along with the physical Atlantic market at record highs. The recent run-up has been lopsided between the oceans with the Pacific gaining less, remaining 30% below highs seen in December 2007. Price equilibration between the basins should be expected with vessels ballasting out of the Pacific to capture stronger Atlantic rates.
  • Near term prices should continue to be responsive to the corn market as well as global weather conditions.

File Name
PR 080516.pdf
PR 080516.xlsx
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