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August 1, 2008

(See attached file: PR 080801.pdf)(See attached file: PR 080801.xlsx)

  • Futures fell through most of the week, correcting from a strong finish last Friday on rumors that 3 MMT of U.S. wheat were sold to Iran. Technical trading reportedly spurred a rally today as markets shrugged off a bearish International Grains Council report raising its global production forecast. Fundamental pressure came this week on Black Sea exports dominating visible sales, harvest pressure in the Northern Hemisphere and improved moisture situation in the Southern Hemisphere. Corn also fell despite a USDA decision not to allow penalty-free planting on land retired to conservation programs. Bullish influences include reports of substantial quality problems in the Ukraine, yield concerns in the U.S. HRS region and a continued blistering pace for U.S. export sales. For the week, the September delivery position at the CBOT fell 17 cents/bu, the KCBOT fell 10 cents/bu and the MGE was off 12 cents/bu. Corn prices were down 12 cents/bu while August delivery soybeans declined 41 cents/bu.
  • Export sales remain strong with 726,400 MT added to the book this week. HRW made up nearly half of the week's program with sales to Nigeria, South Africa and Mexico. Only 2 months into the marketing year, 44% of the USDA export forecast has been committed with 71% of forecast SRW exports already sold. Traders expect demand to slow considerably in the coming weeks with Nigeria covered on their 100,000 MT purchase and the Argentine government opening the export registry for another 900,000 MT, increasing competition for HRW markets in South America and Africa. The report showed 180,000 MT SRW sold to private buyers in Egypt, surprising the trade after GASC stemmed 200,000 MT from the Black Sea this week with SRW priced nearly $20/MT higher. Gulf basis prices firmed for both SRW and HRW on the stout export demand.
  • Much of Ukraine production sub-milling quality: UkrAgroConsult raised its estimate of the feed wheat share of the Ukraine harvest to 50% while Reuters quoted a large producer saying it was closer to 80%. USDA forecasts Ukraine exports at 7.5 MMT, a record and up from 1.1 MMT last year.
  • Uncertainty over global high protein supplies: The Wheat Quality Council's HRS tour indicated dry conditions in western North Dakota and eastern Montana has limited yield potential, particularly for durum, although quality appears good. The yield estimates support the USDA forecast for a 5% HRS production increase over last year. The Canadian Prairies look good with the CWB calling for a 20% increase in production there, but the crop is maturing much slower than normal, increasing the chance for an early autumn frost to cause quality problems. Current record hot conditions will hurry development. The advancing harvest in Germany, supplies that compete with HRS and CWRS in the EU market, is showing lower than average quality due to repeated rains this summer. Global shortage of high protein supplies drove HRS prices to $25/bu last winter.
  • SW prices firmed as harvest yields continue to disappoint, causing producer reluctance to sell. Producers also see the potential for a significant SW demand spike on an aid package to Pakistan. Weather in Australia remains good however, combined with the mammoth SRW and global crops, giving many a bearish outlook on demand and prices. SW FOB prices are $8.65/bu ($318/MT) this week, $67/MT above SRW FOB Gulf prices.
  • Freight rates hit by a summer lull: Slack demand has been cited for falling rates, currently down 10% from a month ago and off 20% since highs seen in May. Rates in the Atlantic are down $23/MT from May while the Pacific is off $19/MT.

File Name
PR 080801.pdf
PR 080801.xlsx
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