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May 23, 2008

(See attached file: PR 080523.pdf)(See attached file: PR 080523.xlsx)

Highlights
  • Winter wheat markets fell convincingly this week as the harvest advances and weakness in other commodities weighed. Prices firmed at the start of the week on a technical rebound from last week's sell-off and precipitation in Australia continuing to disappoint. Stout export demand for HRW, including a sizeable sale to Iraq, supported although interest lacked for other classes. SRW missed the Egyptian tender by $50/MT as soaring ocean freight negated its seasonal advantage, increasing concern over where this year's mammoth crop will find demand. Export restrictions falling off in the Black Sea exacerbates those concerns. The U.S. government offering 500,000 MT of food aid reserves added downward pressure. July delivery positions at the CBOT fell 23 cents/bu and the KCBOT fell 27 cents/bu. The MGE continues to defend old crop HRS supplies despite lacking bids with nearbys up 26 cents/bu while new crop positions were down. Corn nearbys were up 9 cents/bu and soybeans fell 10 cents.
  • U.S. export sales of old crop supplies remain at low levels with only two weeks left to execute shipments. New crop sales continue at a brisk rate as importers put on coverage, weighing concerns over global weather and political risks against the potential for huge harvests. Last week over 394,000 MT were booked, not including 400,000 MT HRW purchased by Iraq over the weekend. Total commitments for 2008/09 are at 4.8 MMT, the highest since 1996 and the second highest in 20 years.
  • The SRW crop looks fantastic with the trade anticipating record yields. It is too early to assess the effects of ample, perhaps excessive, rainfall on quality, but the trade is optimistic as producers had strong incentive to take optimal care of the crop. With new crop sales just over 1 MMT and the export demand outlook pessimistic, the trade is expecting a supply overflow. FOB basis offers fell again this week, now at 80 cents/bu under the Chicago July.
  • Rains in the Northern Plains this week were welcomed as much of Montana and North Dakota received one to two inches of moisture. Northwestern North Dakota reportedly missed out, but will have another chance with more rains expected this weekend. With a spectacular crop in Europe and Asian importers covered into new crop, import interest has fallen flat, pushing basis prices down 35 cents/bu in nearby positions and 15 cents/bu for new crop in Lakes and Gulf ports.
  • Dry, hot conditions in the PNW raised concerns for the SW crop. Recent rains with wide coverage and lower temperatures have helped, but more precipitation is necessary before the end of May or yields will be affected. Values in PNW are difficult to define with yesterday's Japanese tender the first old crop business in six weeks. The SW donation to North Korea yesterday was booked at $10.76/bu ($395/MT), leaving remaining supplies very tight. Old crop supplies are nominally priced at $11/bu ($404/MT), up 75 cents/bu ($28/MT) from last week.
  • HRW demand remains firm with bookings for Iraq at 800,000 MT (including last weekend's sale), Brazil at 329,000 MT and consistent importers Nigeria, Mexico, Cuba and Japan combining for 536,000 MT, over double their pace at this point last year. Opinions regarding HRW crop conditions and expected yields vary widely among the trade and analysts. USDA forecasts the yield at 37 bu/acre, just below last year and the 10-year average while the Wheat Quality Council's HRW tour indicated a 43 bu/acre yield.
  • Ocean freight rates were generally unchanged on the week, stable at record high levels.
  • Price direction will continue to respond to weather, particularly precipitation in Australia.

File Name
PR 080523.pdf
PR 080523.xlsx
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