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January 10, 2008

(See attached file: PR 080110.xlsx)(See attached file: PR 080110.pdf)

  • U.S. futures markets fell this week with nearby Kansas and Minneapolis contracts closing limit-down Monday on rumors that index funds would rebalance portfolios, reducing wheat positions. Today's session was very volatile as traders jockeyed for position before tomorrow's USDA reports. For the week SRW nearbys at the CBOT fell 49 cents/bu, the KCBOT fell by 52 cents and the MGE finished down 51. Corn gained 8 cents/bu this week while beans fell 5 cents.
  • Export sales were again fairly slow with an unexpected 120,000 MT of SRW to Egypt making up the bulk of the 191,000 MT total for the week. Sales now need to average 120,000 MT for the next 21 weeks to meet the USDA export forecast for the year. Egypt announced a tender after Monday's selloff but cancelled while Taiwan, Korea and Japan all booked sales. Korea tendered this afternoon for coverage into May.
  • White wheat supplies remain a concern as Pakistan specified 300,000 MT of last week's 610,000 MT tender as white. Although the white wheat component was reduced to 150,000 MT, the tender caught the attention of importers in North Asia. SW offers jumped by $1.55/bu in a week, taking FOB Portland to $15/bu ($551/MT). SW is now 188% higher than last January and 4.3 times greater than January 2006.
  • Gulf basis prices: Lacking demand for ordinary protein HRW brought down basis levels while short HRS supplies kept basis near the $2.15 record set in June 2005. High protein HRW remains unquoted as available quantities are too small for export. With export demand focused in the Pacific Rim, HRW basis in the PNW rose slightly.
  • Ukraine is likely to resume grain exports at the end of January the Economy Ministry announced today. Applications for licenses are already being accepted. USDA forecasts Ukrainian exports at 1.5 MMT, but recent reports from agriculture officials suggest higher export potential.
  • Winter wheat conditions reports from the top three HRW states released this week were not optimistic. After record high yields last year, Texas reports only 88% of the crop emerged compared to 98% last year and the 94% average. Only 14% of the crop is in good condition and none is rated as excellent, putting the crop condition index at 40 compared to 65 last year. Top producer Kansas reports 47% of the crop as good or excellent, down from 57% last year and Oklahoma rates 35% good or excellent compared to 51% a year ago.
  • Price spreads: The SW premium to SRW is at $5.63/bu ($207/MT), up from $1.06/bu last October. New crop HRS prices gained 27% on old crop this week with September '08 delivery HRS (MU08) at a $1.44/bu discount to nearbys.
  • Ocean freight rates fell in the Pacific as the holidays slowed vessel demand while owners searched for bids. The Atlantic stayed firm however, putting the spread between the basins at $44/MT with Panamax time charters in the Pacific at a $27,000/day discount. Although it would seem profitable for owners to ballast to the Atlantic, none has been reported.
  • Exchange rates: The dollar continued to fall against the euro this week, but rose to parity with the Canadian dollar.
  • Near term price direction will depend largely on the USDA reports released tomorrow. The trade is anticipating large increases in winter wheat plantings and very tight stock levels. Any surprises in those reports, or the WASDE, will be reflected in near term market action.

File Name
PR 080110.xlsx
PR 080110.pdf
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