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October 12, 2007

(See attached file: PR071012.pdf)(See attached file: PR071012.xls)

  • Before Thursday's limit up rebound, markets had been in free fall for over a week. The CBOT fell from a high trade of $9.62/bu on September 28 to a low of $8.41/bu Wednesday. Monday's limit down (30 cent/bu) closes in the U.S. followed European trade as London's Liffe fell by over $1/bu. Bear spreading (long new crop/short old crop) was noted. Funds were reportedly short over 14,000 contracts on Wednesday's close. Outside markets, including surging gold and oil prices and a weaker dollar, were supportive of Thursday's rebound, as was news of several large import tenders by Morocco, Turkey and Iraq, among others. A neutral WASDE today, combined with a bearish sales report, led to renewed selling with markets giving up much of the previous session's gain. From last Friday, CBOT December futures are down 33 cents/bu, the KCBT fell 27 cents/bu while the MGE fell 21 cents/bu. Corn futures are up 9 cents/bu this week.
  • Export sales were just short of 1 MMT this week, but over 400,000 MT were new crop sales. Total commitments for 2008/09 are at 627,000 MT, well above normal. With sales of 400,000 MT HRW to Iraq this week, next week's report is also expected to be quite strong. In today's WASDE, USDA increased the U.S. export forecast by 1.4 MMT, comprised completely by winter wheat classes. With nearly 8 months of the marketing year to go, 79% of projected wheat sales have been committed. By class: HRW is 81% committed, SRW 84%, HRS 75%, SW 73% and durum sales already exceed the export forecast.
  • Short supply availability has driven up export basis offers substantially in all ports. While SRW prices are listed for October positions, no sizeable quantities are available. Basis prices have risen to 75 cents/bu from option (0 cents) earlier this summer. Very strong HRS sales, 495,000 MT sold last week, have pushed HRS basis up 25 cents/bu to 58 cents in Duluth. A shortage of high protein HRW has pushed up the premium on 12% protein supplies in the Gulf. The PNW also saw big basis increases for HRS and HRW while flat priced SW dropped 30 cents this week in sympathy with the CBOT.
  • Bullish fundamentals included Russia confirming a 10% export tax, India extending its ban on wheat exports and implementing a ban on flour, the British Agriculture Ministry releasing a production estimate 1.4 MMT below last year and early harvest grain analysis from Australia showing poor quality.
  • Bearish fundamentals included reports from Australia that rain in Queensland could improve harvest potential, continued good weather in Argentina and another Egyptian tender sourced solely from Russian wheat.
  • The SRW/corn price spread at the CBOT fell nearly 8% this week with December SRW now at a $5.07 premium to corn. The HRW FOB premium to SRW was stable at 30 cents/bu ($11/MT). The SW premium to SRW is also unchanged at $1.33 cents/bu ($49/MT). New crop futures continue to gain on nearbys. December delivery SRW is at a $1.77 premium over July, down from $2.59 a month ago.
  • The U.S. dollar was down this week in volatile trade with the euro is back up to $1.42 and the Canadian dollar worth $1.02 U.S.
  • The Baltic Index continues to set records as jammed up ports and Asian commodity demand absorbs vessel capacity. Container rates are climbing as well with this sector having its own transloading capacity issues.
  • Near term price direction will depend on further evidence of import demand being met by non U.S. sources.

USW Commercial Sales Report:

USDA World Agricultural Supply and Demand Estimates

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