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February 2, 2007

(See attached file: PR070202.xls)(See attached file: PR070202.pdf)

Crude oil jumped nearly $3 to $57/barrel on Tuesday as OPEC producers cut production by 500,000 barrels/day, the biggest price jump since September 2005. The move up in oil momentarily supported the grain complex, but corn could not maintain traction, losing ground from the huge run-up in prices basis the January 12 WASDE. Wheat bounced around but ended mostly unchanged from last week: CBOT SRW nearby futures were down 2 cents/bushel, the KCBOT down 1 cent and the MGE ended even with last Friday's close.

While corn and wheat prices seem to be tied, wheat moved up in Wednesday's session independent of corn, largely on a bullish stocks report from Canada showing a 7% decline in Canadian wheat stocks.
Extreme cold in the Plains and the SRW belt is causing concern among some analysts. Although fields are mostly covered with snow, significant ice accumulation may lie underneath. As Bill Tierney of John Stewart and Associates points out, in 2003/04 the Ukraine lost 80% of its winter wheat crop to ice crusting, smothering the plants, causing a decline in production 4 MMT from 21 MMT the year before. Reports from state wheat commissions are more optimistic about conditions.

Export business included CCC food aid sales of HRW for Mongolia and Ethiopia, HRS to Nicaragua, some Northern Plains durum sales to Morocco, 30,000 MT of Desert Durum to Italy, 120,000 MT of SRW to Egypt and standard business to Taiwan and Korea. Japan did not ask for U.S. tenders as they are done with their March program, but are expected back next week. A 110,000 MT sale of new crop SW to an unspecified destination was reported this week as well.

Basis prices remain generally unchanged for a third week at the Gulf. On the other hand, PNW farmers are very bullish, forcing exporters to push basis prices up significantly.

The HRW premium to SRW continues to rise, this week at 83 cents/bu ($30/MT).

The SW premium to SRW increased again this week to 33 cents/bu ($12/MT) from 26 cents/bu last week.

Ocean freight rates are down $2/MT in the Pacific and $1/MT in the Atlantic. The PNW to Japan rates remains $13/MT (59%) above year-ago rates while the Atlantic basin is up 64%.

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